##### 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 June 30, 2005
 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
 þ o
 þ o




---



DDi CORP.
 FORM 10-Q for the Quarterly Period Ended June 30, 2005
 TABLE OF CONTENTS
 Page No.PART I FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004 (Unaudited)
    
    
    4Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2005 and 2004 (Unaudited)
    
    
    5Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2005 and 2004 (Unaudited)
    
    
    6Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004 (Unaudited)
    
    
    7Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    30PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 6. Exhibits
    
    
    31Signature
    
    
    32EXHIBIT 3.4EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




---



##### Table of Contents



FORWARD-LOOKING STATEMENTS
    
    
    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;
    
    our ability to complete the proposed rights offering and related standby purchase commitments;
    
    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.
  3




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 DDi CORP.
 
 
 June 30,
    
    December 31,2005
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    20,207
    
    
    $
    23,526Accounts receivable, net
    
    
    27,342
    
    
    
    26,564Inventories
    
    
    16,700
    
    
    
    17,996Prepaid expenses and other
    
    
    2,719
    
    
    
    1,713Current assets held for disposal
    
    
    
    
    
    
    33,016Total current assets
    
    
    66,968
    
    
    
    102,815Property, plant and equipment, net
    
    
    32,484
    
    
    
    36,376Debt issuance costs, net
    
    
    1,224
    
    
    
    1,780Goodwill
    
    
    65,385
    
    
    
    99,375Other intangibles, net
    
    
    15,710
    
    
    
    18,009Deferred income tax
    
    
    536
    
    
    
    541Assets held for disposal
    
    
    
    
    
    
    26,245Other
    
    
    688
    
    
    
    810Total assets
    
    $
    182,995
    
    
    $
    285,951Liabilities, Mandatorily Redeemable Preferred Stock and Stockholders EquityCurrent liabilities:Current maturities of long-term debt and capital lease obligations
    
    $
    499
    
    
    $
    916Revolving credit facilities
    
    
    17,459
    
    
    
    15,948Accounts payable
    
    
    17,683
    
    
    
    16,389Accrued expenses and other liabilities
    
    
    15,623
    
    
    
    14,527Income taxes payable
    
    
    1,544
    
    
    
    1,099Current liabilities held for disposal
    
    
    
    
    
    
    67,853Total current liabilities
    
    
    52,808
    
    
    
    116,732Long-term debt and capital lease obligations
    
    
    18,213
    
    
    
    18,252Other long-term liabilities
    
    
    5,195
    
    
    
    8,602Liabilities held for disposal
    
    
    
    
    
    
    3,725Total liabilities
    
    
    76,216
    
    
    
    147,311Series B mandatorily redeemable preferred stock and accrued dividends
    
    
    59,665
    
    
    
    61,557Stockholders equity:Common stock  $0.001 par value, 75,000,000 shares authorized, 27,286,655
and 25,513,522 shares issued and outstanding at June 30,
2005 and December 31, 2004, respectively.
    
    
    28
    
    
    
    26Additional paid-in-capital
    
    
    144,194
    
    
    
    147,739Deferred compensation
    
    
    (5,026
    )
    
    
    (9,445
    )Accumulated other comprehensive income (loss)
    
    
    13
    
    
    
    (712
    )Stockholder receivables
    
    
    (661
    )
    
    
    (652
    )Accumulated deficit
    
    
    (91,434
    )
    
    
    (59,873
    )Total stockholders equity
    
    
    47,114
    
    
    
    77,083Total liabilities, mandatorily redeemable preferred stock and stockholders equity
    
    $
    182,995
    
    
    $
    285,951
  4




---



##### Table of Contents



DDi CORP.
 
 
 Three months ended
    
    Six months endedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net sales
    
    $
    45,538
    
    
    $
    49,894
    
    
    $
    90,487
    
    
    $
    97,949Cost of goods sold:Cost of goods sold
    
    
    38,105
    
    
    
    37,475
    
    
    
    75,322
    
    
    
    74,221Restructuring-related inventory impairment
    
    
    1,253
    
    
    
    
    
    
    
    1,253
    
    
    
    Non-cash compensation and amortization of
intangibles
    
    
    700
    
    
    
    2,532
    
    
    
    421
    
    
    
    8,233Total cost of goods sold
    
    
    40,058
    
    
    
    40,007
    
    
    
    76,996
    
    
    
    82,454Gross profit
    
    
    5,480
    
    
    
    9,887
    
    
    
    13,491
    
    
    
    15,495Operating expenses:Sales and marketing:Non-cash compensation
    
    
    105
    
    
    
    377
    
    
    
    (349
    )
    
    
    1,087Sales and marketing expenses
    
    
    3,718
    
    
    
    3,841
    
    
    
    7,204
    
    
    
    7,464Total sales and marketing
    
    
    3,823
    
    
    
    4,218
    
    
    
    6,855
    
    
    
    8,551General and administration:Non-cash compensation
    
    
    156
    
    
    
    1,238
    
    
    
    405
    
    
    
    2,574General and administration expenses
    
    
    2,625
    
    
    
    2,732
    
    
    
    6,576
    
    
    
    4,928Total general and administration
    
    
    2,781
    
    
    
    3,970
    
    
    
    6,981
    
    
    
    7,502Amortization of intangibles
    
    
    1,149
    
    
    
    1,150
    
    
    
    2,299
    
    
    
    2,300Goodwill impairment
    
    
    31,129
    
    
    
    
    
    
    
    31,129
    
    
    
    Restructuring and other related charges
    
    
    4,390
    
    
    
    12
    
    
    
    4,390
    
    
    
    356Reorganization charges
    
    
    
    
    
    
    84
    
    
    
    
    
    
    
    748Operating income (loss)
    
    
    (37,792
    )
    
    
    453
    
    
    
    (38,163
    )
    
    
    (3,962
    )Interest and other expense, net
    
    
    1,299
    
    
    
    899
    
    
    
    2,490
    
    
    
    5,303Loss from continuing operations before income
taxes
    
    
    (39,091
    )
    
    
    (446
    )
    
    
    (40,653
    )
    
    
    (9,265
    )Income tax benefit (expense)
    
    
    403
    
    
    
    (668
    )
    
    
    (648
    )
    
    
    (1,429
    )Loss from continuing operations
    
    
    (38,688
    )
    
    
    (1,114
    )
    
    
    (41,301
    )
    
    
    (10,694
    )Net income (loss) from discontinued operations
(including non-cash gain on disposal of
$11,053 in 2005)
    
    
    
    
    
    
    (2,740
    )
    
    
    9,740
    
    
    
    (10,588
    )Net loss
    
    
    (38,688
    )
    
    
    (3,854
    )
    
    
    (31,561
    )
    
    
    (21,282
    )Less: Series B preferred stock dividends and
accretion
    
    
    (1,341
    )
    
    
    (1,370
    )
    
    
    (2,683
    )
    
    
    (1,370
    )Net loss available to common stockholders
    
    $
    (40,029
    )
    
    $
    (5,224
    )
    
    $
    (34,244
    )
    
    $
    (22,652
    )Loss per share of common stock from continuing
operations  basic and diluted
    
    $
    (1.47
    )
    
    $
    (0.10
    )
    
    $
    (1.66
    )
    
    $
    (0.48
    )Net loss per share of common stock  basic and
diluted
    
    $
    (1.47
    )
    
    $
    (0.21
    )
    
    $
    (1.30
    )
    
    $
    (0.90
    )Weighted average shares used in per share
computations  basic and diluted
    
    
    27,195,872
    
    
    
    25,452,392
    
    
    
    26,425,257
    
    
    
    25,098,750
  5




---



##### Table of Contents



DDi CORP.
 
 
 Three months ended
    
    Six months endedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net loss
    
    $
    (38,688
    )
    
    $
    (3,854
    )
    
    $
    (31,561
    )
    
    $
    (21,282
    )Other comprehensive income (loss):Foreign currency
translation adjustments
    
    
    (42
    )
    
    
    (164
    )
    
    
    180
    
    
    
    216Comprehensive loss
    
    $
    (38,730
    )
    
    $
    (4,018
    )
    
    $
    (31,381
    )
    
    $
    (21,066
    )
  6




---



##### Table of Contents



DDi CORP.
 
 
 Six months ended June 30,2005
    
    2004Cash flows from operating activities:Loss from continuing operations
    
    $
    (41,301
    )
    
    $
    (10,694
    )Adjustments to reconcile loss from continuing operations to cash provided by (used in)
operating activities:Depreciation
    
    
    4,927
    
    
    
    4,859Amortization of debt issuance costs and discount
    
    
    350
    
    
    
    1,088Capital senior note accretion
    
    
    19
    
    
    
    581Amortization of intangible assets
    
    
    2,299
    
    
    
    3,068Goodwill impairment
    
    
    31,129
    
    
    
    Non-cash compensation
    
    
    477
    
    
    
    11,125Non-cash and accrued restructuring and other related charges
    
    
    4,575
    
    
    
    970Deferred income taxes
    
    
    5
    
    
    
    (2
    )Interest income on stockholder receivables
    
    
    (9
    )
    
    
    (9
    )Loss on sale of fixed assets
    
    
    108
    
    
    
    161Change in operating assets and liabilities:Increase in accounts receivable
    
    
    (860
    )
    
    
    (6,902
    )(Increase) decrease in prepaid expenses and other
    
    
    (889
    )
    
    
    64(Increase) decrease in inventory
    
    
    6
    
    
    
    (3,078
    )Increase in accounts payable
    
    
    1,318
    
    
    
    3,219Decrease in accrued expenses and other
    
    
    (2,254
    )
    
    
    (5,255
    )Increase in income tax payable
    
    
    1,035
    
    
    
    265Net cash provided by (used in) operating activities from continuing operations
    
    
    935
    
    
    
    (540
    )Net cash used in operating activities from discontinued operations
    
    
    (1,975
    )
    
    
    (3,050
    )Net cash used in operating activities
    
    
    (1,040
    )
    
    
    (3,590
    )Cash flows from investing activities:Purchases of equipment and leasehold improvements
    
    
    (3,306
    )
    
    
    (2,703
    )Proceeds from sale of fixed assets
    
    
    1
    
    
    
    1,505Proceeds from the release of restricted cash
    
    
    
    
    
    
    7,500Cash outflows related to acquisition earn out
    
    
    (300
    )
    
    
    (475
    )Net cash used in investing activities from discontinued operations
    
    
    (10
    )
    
    
    (2,275
    )Net cash provided by (used in) investing activities
    
    
    (3,615
    )
    
    
    3,552Cash flows from financing activities:Principal payments on capital leases
    
    
    (473
    )
    
    
    (882
    )Principal payments on long-term debt
    
    
    
    
    
    
    (72,396
    )Net borrowings on revolving credit facility
    
    
    1,511
    
    
    
    14,201Refund (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
    
    
    
    
    
    
    (3,425
    )Proceeds from issuance of common stock
    
    
    
    
    
    
    15,980Costs incurred in connection with the issuance of common stock
    
    
    
    
    
    
    (1,456
    )Dividends paid on Series B preferred stock
    
    
    (915
    )
    
    
    Proceeds from exercise of stock options
    
    
    30
    
    
    
    382Net cash provided by financing activities from discontinued operations
    
    
    884
    
    
    
    183Net cash provided by financing activities
    
    
    1,243
    
    
    
    10,937Effect of exchange rate changes on cash
    
    
    93
    
    
    
    (20
    )Net increase (decrease) in cash and cash equivalents
    
    
    (3,319
    )
    
    
    10,879Cash and cash equivalents, beginning of year
    
    
    23,526
    
    
    
    11,202Cash and cash equivalents, end of period
    
    $
    20,207
    
    
    $
    22,081
  7




---



##### Table of Contents



NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
 Basis of Presentation
     Description of Business
  Recently Issued Accounting Standards
   8




---



##### Table of Contents



NOTE 2. INVENTORIES
  June 30,
    
    December 31,2005
    
    2004Raw materials
    
    $
    7,697
    
    
    $
    8,094Work-in-process
    
    
    6,628
    
    
    
    7,020Finished goods
    
    
    2,375
    
    
    
    2,882Total
    
    $
    16,700
    
    
    $
    17,996
 NOTE 3. REVOLVING CREDIT FACILITY, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
  June 30,
    
    December 31,2005
    
    2004DDI Capital Senior Accreting Notes, due
January 1, 2009, face amount of $18,394 at
June 30, 2005 and December 31, 2004, net of
unamortized discount of $181 and $200 at June
30, 2005 and December 31, 2004, respectively
    
    $
    18,213
    
    
    $
    18,194Dynamic Details Revolving Credit Facility (a)
    
    
    17,459
    
    
    
    15,948Capital lease obligations
    
    
    499
    
    
    
    974Total
    
    
    36,171
    
    
    
    35,116Less: current maturities
    
    
    (499
    )
    
    
    (916
    )Less: Dynamic Details Revolving Credit Facility
    
    
    (17,459
    )
    
    
    (15,948
    )Total non-current liabilities
    
    $
    18,213
    
    
    $
    18,252
 (a)
    
    Interest rate is based on prime rate. The effective interest rate as of June 30, 2005, was
9.25%.
 9




---



##### Table of Contents



Senior Credit Facility
  Revolving Credit Facility
  DDi Capital Senior Accreting Notes
  10




---



##### Table of Contents



NOTE 4. PRODUCT WARRANTY
  Six months endedJune 30,2005Beginning balance
    
    $
    656Current period warranty charges
    
    
    1,599Utilization
    
    
    (1,583
    )Ending balance
    
    $
    672
 NOTE 5. EARNINGS PER SHARE
 Basic and diluted earnings per share
  Three months ended
    
    Six months endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Loss from continuing operations
    
    $
    (38,688
    )
    
    $
    (1,114
    )
    
    $
    (41,301
    )
    
    $
    (10,694
    )Less: Series B preferred stock
dividends and accretion
    
    
    (1,341
    )
    
    
    (1,370
    )
    
    
    (2,683
    )
    
    
    (1,370
    )Loss from continuing operations
available to common stockholders 
basic and diluted
    
    $
    (40,029
    )
    
    $
    (2,484
    )
    
    $
    (43,984
    )
    
    $
    (12,064
    )Weighted average shares of common
stock outstanding (basic and
diluted)
    
    
    27,195,872
    
    
    
    25,452,392
    
    
    
    26,425,257
    
    
    
    25,098,750Loss from continuing operations per
share of common stock  basic and
diluted
    
    $
    (1.47
    )
    
    $
    (0.10
    )
    
    $
    (1.66
    )
    
    $
    (0.48
    )Net income (loss) from discontinued
operations  basic and diluted
(including gain on disposal of
$11,053 in 2005)
    
    $
    
    
    
    $
    (2,740
    )
    
    $
    9,740
    
    
    $
    (10,588
    )Weighted average shares of common
stock outstanding (basic and
diluted)
    
    
    27,195,872
    
    
    
    25,452,392
    
    
    
    26,425,257
    
    
    
    25,098,750Net income (loss) per share of
common stock from discontinued
operations  basic and diluted
    
    $
    (0.00
    )
    
    $
    (0.11
    )
    
    $
    0.37
    
    
    $
    (0.42
    )Net loss
    
    $
    (38,688
    )
    
    $
    (3,854
    )
    
    $
    (31,561
    )
    
    $
    (21,282
    )Less: Series B preferred stock
dividends and accretion
    
    
    (1,341
    )
    
    
    (1,370
    )
    
    
    (2,683
    )
    
    
    (1,370
    )Net loss available to common
stockholders  basic and diluted
    
    $
    (40,029
    )
    
    $
    (5,224
    )
    
    $
    (34,244
    )
    
    $
    (22,652
    )Weighted average shares of common
stock outstanding (basic and
diluted)
    
    
    27,195,872
    
    
    
    25,452,392
    
    
    
    26,425,257
    
    
    
    25,098,750Net loss per share of common stock
 basic and diluted
    
    $
    (1.47
    )
    
    $
    (0.21
    )
    
    $
    (1.30
    )
    
    $
    (0.90
    )
 11




---



##### Table of Contents



NOTE 6. SERIES B MANDATORILY REDEEMABLE PREFERRED STOCK
    NOTE 7. STOCK OPTIONS
   Cost of
    
    Sales and
    
    General andGoods Sold
    
    Marketing
    
    Administration
    
    TotalAmortization of
deferred
compensation
    
    $
    723
    
    
    $
    105
    
    
    $
    172
    
    
    $
    1,000Forfeitures
    
    
    (23
    )
    
    
    
    
    
    
    (16
    )
    
    
    (39
    )Total non-cash
compensation
expense in
continuing
operations
    
    $
    700
    
    
    $
    105
    
    
    $
    156
    
    
    $
    961
 12




---



##### Table of Contents



Cost of
    
    Sales
    
    General andGoods Sold
    
    and Marketing
    
    Administration
    
    TotalAmortization of
deferred
compensation
    
    $
    1,625
    
    
    $
    226
    
    
    $
    423
    
    
    $
    2,274Forfeitures
    
    
    (1,204
    )
    
    
    (575
    )
    
    
    (18
    )
    
    
    (1,797
    )Total non-cash
compensation
expense in
continuing
operations
    
    $
    421
    
    
    $
    (349
    )
    
    $
    405
    
    
    $
    477
   Three Months ended
    
    Six Months endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net loss available to common stockholders:As reported  basic and diluted
    
    $
    (40.0
    )
    
    $
    (5.2
    )
    
    $
    (34.2
    )
    
    $
    (22.7
    )Less: non-cash compensation expense under FAS 123, net of tax
    
    
    (1.4
    )
    
    
    (5.8
    )
    
    
    (0.7
    )
    
    
    (16.5
    )Add: non-cash compensation expense (credit) under APB 25,
net of tax
    
    
    1.0
    
    
    
    4.3
    
    
    
    (0.1
    )
    
    
    12.8Pro Forma  basic and diluted
    
    $
    (40.4
    )
    
    $
    (6.7
    )
    
    $
    (35.0
    )
    
    $
    (26.4
    )Net loss per share of common stock  basic and diluted:As Reported
    
    $
    (1.47
    )
    
    $
    (0.21
    )
    
    $
    (1.30
    )
    
    $
    (0.90
    )Pro Forma
    
    $
    (1.49
    )
    
    $
    (0.26
    )
    
    $
    (1.32
    )
    
    $
    (1.05
    )
 NOTE 8. SEGMENT REPORTING
   13




---



##### Table of Contents



Three Months ended
    
    Six Months endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net sales:North America (a)
    
    $
    44,010
    
    
    $
    48,107
    
    
    $
    86,724
    
    
    $
    93,894Asia
    
    
    1,051
    
    
    
    1,120
    
    
    
    2,912
    
    
    
    2,467Other
    
    
    477
    
    
    
    667
    
    
    
    851
    
    
    
    1,588Total
    
    $
    45,538
    
    
    $
    49,894
    
    
    $
    90,487
    
    
    $
    97,949
  NOTE 9. GOODWILL AND INTANGIBLES
  As of June 30, 2005
    
    As of December 31, 2004Gross
    
    Accumulated
    
    Net
    
    Gross
    
    Accumulated
    
    NetAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountIdentifiable intangible assets:Customer relationships
    
    $
    22,990
    
    
    $
    (7,280
    )
    
    $
    15,710
    
    
    $
    22,990
    
    
    $
    (4,981
    )
    
    $
    18,009Backlog
    
    
    1,923
    
    
    
    (1,923
    )
    
    
    
    
    
    
    1,923
    
    
    
    (1,923
    )
    
    
    $
    24,913
    
    
    $
    (9,203
    )
    
    $
    15,710
    
    
    $
    24,913
    
    
    $
    (6,904
    )
    
    $
    18,009
   14




---



##### Table of Contents



Six monthsendedJune 30, 2005Beginning balance
    
    $
    99,375Fresh start accounting adjustments
    
    
    (2,861
    )Impairment charges
    
    
    (31,129
    )Ending balance
    
    $
    65,385
 NOTE 10. RESTRUCTURING
      Employeetermination
    
    Contract
    
    Facility
    
    Other exitbenefits
    
    terminations
    
    Closure
    
    costs
    
    TotalAccrued
restructuring costs
at December 31,
2004
    
    $
    
    
    
    $
    (50
    )
    
    $
    
    
    
    $
    (368
    )
    
    $
    (418
    )Arizona shutdown
    
    
    (472
    )
    
    
    (340
    )
    
    
    (1,100
    )
    
    
    (92
    )
    
    
    (2,004
    )Colorado closure
    
    
    (86
    )
    
    
    (6
    )
    
    
    
    
    
    
    (4
    )
    
    
    (96
    )Other costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (221
    )
    
    
    (221
    )(558
    )
    
    
    (346
    )
    
    
    (1,100
    )
    
    
    (317
    )
    
    
    (2,321
    )Payments
    
    
    378
    
    
    
    250
    
    
    
    
    
    
    
    111
    
    
    
    739Accrued
restructuring costs
at June 30, 2005
    
    $
    (156
    )
    
    $
    (146
    )
    
    $
    (1,100
    )
    
    $
    (598
    )
    
    $
    (2,000
    )
  NOTE 11. COMPREHENSIVE LOSS
  15




---



##### Table of Contents



NOTE 12. DISCONTINUED OPERATIONS
    DDi Europe Statements of Operations
 Three months
    
    Six months
    
    Six monthsended
    
    ended
    
    endedJune 30,
    
    June 30,*
    
    June 30,2004
    
    2005
    
    2004Net sales
    
    $
    25,652
    
    
    $
    7,873
    
    
    $
    49,947Cost of goods sold
    
    
    22,722
    
    
    
    6,843
    
    
    
    45,965Gross profit
    
    
    2,930
    
    
    
    1,030
    
    
    
    3,982Operating expenses:Sales and marketing
    
    
    945
    
    
    
    126
    
    
    
    2,562General and administration
    
    
    2,174
    
    
    
    1,618
    
    
    
    4,449Restructuring and other related charges
    
    
    925
    
    
    
    219
    
    
    
    4,514Reorganization expenses
    
    
    134
    
    
    
    
    
    
    
    410Operating loss
    
    
    (1,248
    )
    
    
    (933
    )
    
    
    (7,953
    )Gain on disposal of DDi Europe
    
    
    
    
    
    
    11,053
    
    
    
    Interest expense and other (income), net
    
    
    1,473
    
    
    
    (380
    )
    
    
    3,055Income (loss) from discontinued operations
before income taxes
    
    
    (2,721
    )
    
    
    9,740
    
    
    
    (11,008
    )Income tax benefit
    
    
    (19
    )
    
    
    
    
    
    
    420Net income (loss) from discontinued operations
    
    $
    (2,740
    )
    
    $
    9,740
    
    
    $
    (10,588
    )
  16




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
    Recent Accounting Pronouncements
    17




---



##### Table of Contents



Discontinuation of European Business
   Results of Operations
 Three Months Ended June 30, 2005 Compared to the Three Months Ended June 30, 2004
 Net Sales
  Non-Cash Compensation Expense
  18




---



##### Table of Contents



Gross Profit
  Sales and Marketing Expenses
  General and Administration Expenses
  Goodwill Impairment
 .
 Restructuring and Reorganization Charges
   Net Interest Expense
  19




---



##### Table of Contents



Income Taxes
  Net Loss From Discontinued Operations
  Series B Preferred Stock Dividends and Accretion
  Six Months Ended June 30, 2005 Compared to the Six Months Ended June 30, 2004
 Net Sales
  Non-Cash Compensation Expense
  Gross Profit
  Sales and Marketing Expenses
  20




---



##### Table of Contents



General and Administration Expenses
  Goodwill Impairment
  Restructuring and Reorganization Charges
   Net Interest Expense
  Income Taxes
  Net Loss from, and Gain on Disposition of, Discontinued Operations
  21




---



##### Table of Contents



Series B Preferred Stock Dividends and Accretion
  Liquidity and Capital Resources
 General
  Consolidated Cash and Cash Equivalents and Available Borrowings
 .
 Consolidated Cash Flows
    Current Indebtedness of the Company
 Dynamic Details Asset-based Credit Facility
  22




---



##### Table of Contents



DDi Capital Senior Accreting Notes
  Series B Preferred Stock
    23




---



##### Table of Contents



Contractual Cash Obligations and Commercial Commitments
  
 For the SixMonths EndingDecember 31,
    
    Year Ending December 31,Commitments
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    Thereafter
    
    TotalDDi Capital Accreting Notes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18.4
    
    
    $
    
    
    
    $
    
    
    
    $
    18.4Interest  Capital Accreting
Notes
    
    
    1.3
    
    
    
    2.6
    
    
    
    2.6
    
    
    
    2.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.1Series B mandatorily redeemable
preferred stock (1)- Series B
    
    
    20.3
    
    
    
    40.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61.0- Dividends
    
    
    1.5
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.7Capital Lease Obligations
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6Note payable
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Operating Leases
    
    
    3.5
    
    
    
    5.7
    
    
    
    4.5
    
    
    
    3.7
    
    
    
    3.0
    
    
    
    2.0
    
    
    
    1.4
    
    
    
    23.8Total Commitments
    
    $
    27.2
    
    
    $
    50.5
    
    
    $
    7.1
    
    
    $
    6.3
    
    
    $
    21.4
    
    
    $
    2.0
    
    
    $
    1.4
    
    
    $
    115.9
 (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. In addition, the Company
has the right to redeem the shares earlier under certain circumstances. 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 prior to maturity, 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
 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 .
  24




---



##### Table of Contents



If we default on covenants under the Certificate of Designation for our Series B Preferred Stock,
the Series B Holders would have the right to accelerate and to obtain immediate repayment of the
entire stated value of the Series B Preferred Stock.
  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.
  We may need additional capital in the future and it may not be available on acceptable terms, or at
all.
  
    
    to fund our operations beyond June 30, 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.
  The terms of our lending arrangements and outstanding Series B Preferred Stock may restrict our
financial and operational flexibility.
  25




---



##### Table of Contents



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.
   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.
   We may experience significant fluctuation in our revenue because we sell primarily on a purchase
order
basis, rather than pursuant to long-term contracts.
  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 by, this core group could adversely affect our total
revenue.
  26




---



##### Table of Contents



If we experience excess capacity due to variability in customer demand, our gross margins may
decline.
  We are subject to intense competition, and our business may be adversely affected by these
competitive pressures.
   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.
  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.
  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.
   
    
    stop producing products that use the intellectual property in question;
 27




---



##### Table of Contents




    
    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.
  Complying with applicable environmental laws requires significant resources, and if we fail to
comply, we could be subject to substantial liability.
   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.
  We depend on our key personnel and may have difficulty attracting and retaining skilled employees.
  28




---



##### Table of Contents



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.
  Sale of large amounts of our common stock or the perception that sales could occur may depress our
stock price.
   The trading price of our common stock may continue to be volatile.
  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.
   29




---



##### 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 .
 30




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 6. Exhibits
 Exhibits.
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Certificate of
Incorporation of DDi Corp., previously filed with the Commission on
December 17, 2003 as an exhibit to DDi Corp.s Current Report
 on Form 8-K, which is incorporated herein by reference.3.2
    
    Certificate of Designation of DDi
Corp., previously filed with the Commission on December 17, 2003
as an exhibit to DDi Corp.s Current Report on Form 8-K, which is incorporated herein by reference3.3
    
    Certificate of Designation of
Series B Preferred Stock of DDi
Corp., previously filed with the Commission on April 7, 2004
as an exhibit to DDi Corp.s Current Report on Form 8-K, which
 is incorporated herein by reference3.4
    
    Amended & Restated Bylaws of DDi Corp., as amended.10.1
    
    Purchase Agreement, dated as of June 2, 2005, by and
between DDi Corp. and Caiman Partners, L.P., Contrarian
Turnaround Equities, LLC, Greywolf Capital Partners II
LP, QVT Fund LP, Sankaty Credit Opportunities, L.P.,
Sankaty High Yield Asset Partners, L.P., Sankaty High
Yield Partners II, L.P., Sankaty High Yield Partners
III, L.P. and Sankaty Prospect Credit Partners, L.P.,
previously filed with the Commission on June 3, 2005 as
an exhibit to DDi Corp.s Current Report on Form 8-K,
which is incorporated herein by reference.10.2
    
    Amendment to Restricted Stock Agreement (with schedule
of parties attached) previously filed with the
Commission on June 24, 2005 as an exhibit to DDi Corp.s
Current Report on Form 8-K, which is incorporated herein
by reference.10.3
    
    Amendment to Non-Qualified Stock Option Agreement (with
schedule of parties attached), previously filed with the
Commission on June 24, 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.
 31




---



##### Table of Contents



SIGNATURE
  Date: August 8, 2005
    DDi CORP.By:
    /s/ MIKEL WILLIAMSMikel WilliamsSenior Vice President, Chief Financial Officer
(Authorized Signatory and
Principal Financial Officer) 32




---



##### Table of Contents



Exhibit No.
    
    Description3.1
    
    Amended and Restated Certificate of
Incorporation of DDi Corp., previously filed with the Commission on
December 17, 2003 as an exhibit to DDi Corp.s Current Report
 on Form 8-K, which is incorporated herein by reference.3.2
    
    Certificate of Designation of DDi
Corp., previously filed with the Commission on December 17, 2003
as an exhibit to DDi Corp.s Current Report on Form 8-K, which is incorporated herein by reference3.3
    
    Certificate of Designation of
Series B Preferred Stock of DDi
Corp., previously filed with the Commission on April 7, 2004
as an exhibit to DDi Corp.s Current Report on Form 8-K, which
 is incorporated herein by reference3.4
    
    Amended & Restated Bylaws of DDi Corp., as amended.10.1
    
    Purchase Agreement, dated as of June 2, 2005, by and
between DDi Corp. and Caiman Partners, L.P., Contrarian
Turnaround Equities, LLC, Greywolf Capital Partners II
LP, QVT Fund LP, Sankaty Credit Opportunities, L.P.,
Sankaty High Yield Asset Partners, L.P., Sankaty High
Yield Partners II, L.P., Sankaty High Yield Partners
III, L.P. and Sankaty Prospect Credit Partners, L.P.,
previously filed with the Commission on June 3, 2005 as
an exhibit to DDi Corp.s Current Report on Form 8-K,
which is incorporated herein by reference.10.2
    
    Amendment to Restricted Stock Agreement (with schedule
of parties attached) previously filed with the
Commission on June 24, 2005 as an exhibit to DDi Corp.s
Current Report on Form 8-K, which is incorporated herein
by reference.10.3
    
    Amendment to Non-Qualified Stock Option Agreement (with
schedule of parties attached), previously filed with the
Commission on June 24, 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.