##### 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 September 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
(State or other jurisdiction
of incorporation or organization)
    
    06-1576013
(I.R.S. Employer
Identification No.)
 1220 Simon Circle
Anaheim, California 92806
 
 (Address of principal executive offices) (Zip code)
 (714) 688-7200
 
 (Registrants telephone number, including area code)
 Not Applicable
 
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
 þ o
 o þ
 þ o




---



DDi CORP.
FORM 10-Q for the Quarterly Period Ended September 30, 2005
 TABLE OF CONTENTS
 PageNo.PART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004 (Unaudited)
    
    
    
    
    
    
    4Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2005 and 2004 (Unaudited)
    
    
    
    
    
    
    5Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2005 and 2004 (Unaudited)
    
    
    
    
    
    
    6Condensed Consolidated Statement of Stockholders Equity (Unaudited)
    
    
    
    
    
    
    7Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004 (Unaudited)
    
    
    
    
    
    
    8Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    
    
    
    
    9Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    
    
    
    
    19Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    
    
    
    
    32Item 4.
    
    Controls and Procedures
    
    
    
    
    
    
    33PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    
    
    
    
    34Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    
    
    
    
    34Item 6.
    
    Exhibits
    
    
    
    
    
    
    36Signature
    
    
    
    
    
    
    
    
    37EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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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;
    
    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




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 DDi CORP.
 
    September 30,
    
    
    December 31,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    31,926
    
    
    $
    23,526Cash and cash equivalents, restricted
    
    
    3,262
    
    
    
    Accounts receivable, net
    
    
    27,497
    
    
    
    26,564Inventories
    
    
    16,862
    
    
    
    17,996Prepaid expenses and other
    
    
    1,682
    
    
    
    1,713Current assets held for disposal
    
    
    
    
    
    
    33,016Total current assets
    
    
    81,229
    
    
    
    102,815Property, plant and equipment, net
    
    
    32,402
    
    
    
    36,376Debt issuance costs, net
    
    
    1,049
    
    
    
    1,780Goodwill
    
    
    41,845
    
    
    
    99,375Other intangibles, net
    
    
    14,560
    
    
    
    18,009Deferred income tax
    
    
    563
    
    
    
    541Assets held for disposal
    
    
    
    
    
    
    26,245Other
    
    
    593
    
    
    
    810Total assets
    
    $
    172,241
    
    
    $
    285,951Liabilities, Mandatorily Redeemable Preferred Stock and Stockholders EquityCurrent liabilities:Current maturities of long-term debt and capital lease obligations
    
    $
    18,478
    
    
    $
    916Revolving credit facilities
    
    
    3,544
    
    
    
    15,948Accounts payable
    
    
    17,876
    
    
    
    16,389Accrued expenses and other liabilities
    
    
    14,165
    
    
    
    14,527Income taxes payable
    
    
    1,797
    
    
    
    1,099Current liabilities held for disposal
    
    
    
    
    
    
    67,853Total current liabilities
    
    
    55,860
    
    
    
    116,732Long-term debt and capital lease obligations
    
    
    
    
    
    
    18,252Other long-term liabilities
    
    
    4,917
    
    
    
    8,602Liabilities held for disposal
    
    
    
    
    
    
    3,725Total liabilities
    
    
    60,777
    
    
    
    147,311Series B mandatorily redeemable preferred stock and accrued dividends (see Note 6)
    
    
    141
    
    
    
    61,557Stockholders equity:Common stock  $0.001 par value, 190,000,000 shares authorized, 127,255,401 and
25,513,522 shares issued and outstanding at September 30, 2005 and December 31,
2004, respectively.
    
    
    128
    
    
    
    26Additional paid-in-capital
    
    
    233,762
    
    
    
    147,739Deferred compensation
    
    
    (3,999
    )
    
    
    (9,445
    )Accumulated other comprehensive income (loss)
    
    
    338
    
    
    
    (712
    )Stockholder receivables
    
    
    (665
    )
    
    
    (652
    )Accumulated deficit
    
    
    (118,241
    )
    
    
    (59,873
    )Total stockholders equity
    
    
    111,323
    
    
    
    77,083Total liabilities, mandatorily redeemable preferred stock and stockholders equity
    
    $
    172,241
    
    
    $
    285,951
  4




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##### Table of Contents



DDi CORP.
 
    Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    45,974
    
    
    $
    47,072
    
    
    $
    136,461
    
    
    $
    145,021Cost of goods sold:Cost of goods sold
    
    
    38,758
    
    
    
    40,553
    
    
    
    114,080
    
    
    
    114,774Restructuring-related inventory impairment
    
    
    
    
    
    
    
    
    
    
    1,253
    
    
    
    Non-cash compensation and amortization of intangibles
    
    
    670
    
    
    
    2,261
    
    
    
    1,091
    
    
    
    10,494Total cost of goods sold
    
    
    39,428
    
    
    
    42,814
    
    
    
    116,424
    
    
    
    125,268Gross profit
    
    
    6,546
    
    
    
    4,258
    
    
    
    20,037
    
    
    
    19,753Operating expenses:Sales and marketing:Non-cash compensation
    
    
    99
    
    
    
    345
    
    
    
    (250
    )
    
    
    1,432Sales and marketing expenses
    
    
    3,748
    
    
    
    3,563
    
    
    
    10,952
    
    
    
    11,027Total sales and marketing
    
    
    3,847
    
    
    
    3,908
    
    
    
    10,702
    
    
    
    12,459General and administration:Non-cash compensation
    
    
    131
    
    
    
    724
    
    
    
    536
    
    
    
    3,298General and administration expenses
    
    
    3,242
    
    
    
    3,231
    
    
    
    9,818
    
    
    
    8,159Total general and administration
    
    
    3,373
    
    
    
    3,955
    
    
    
    10,354
    
    
    
    11,457Amortization of intangibles
    
    
    1,149
    
    
    
    1,150
    
    
    
    3,448
    
    
    
    3,450Goodwill impairment
    
    
    23,540
    
    
    
    
    
    
    
    54,669
    
    
    
    Restructuring and other related charges
    
    
    182
    
    
    
    (22
    )
    
    
    4,572
    
    
    
    334Reorganization charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    748Operating loss
    
    
    (25,545
    )
    
    
    (4,733
    )
    
    
    (63,708
    )
    
    
    (8,695
    )Interest and other expense, net
    
    
    1,598
    
    
    
    1,252
    
    
    
    4,088
    
    
    
    6,555Loss from continuing operations before income taxes
    
    
    (27,143
    )
    
    
    (5,985
    )
    
    
    (67,796
    )
    
    
    (15,250
    )Income tax expense
    
    
    (160
    )
    
    
    (540
    )
    
    
    (808
    )
    
    
    (1,969
    )Loss from continuing operations
    
    
    (27,303
    )
    
    
    (6,525
    )
    
    
    (68,604
    )
    
    
    (17,219
    )Net income (loss) from discontinued operations
(including non-cash gain on disposal of $496 and
$11,549 in the three and nine month periods ended
September 30, 2005, respectively)
    
    
    496
    
    
    
    (10,282
    )
    
    
    10,236
    
    
    
    (20,870
    )Net loss
    
    
    (26,807
    )
    
    
    (16,807
    )
    
    
    (58,368
    )
    
    
    (38,089
    )Less: Series B preferred stock dividends and accretion
    
    
    (1,986
    )
    
    
    (1,332
    )
    
    
    (4,669
    )
    
    
    (2,702
    )Net loss available to common stockholders
    
    $
    (28,793
    )
    
    $
    (18,139
    )
    
    $
    (63,037
    )
    
    $
    (40,791
    )Loss per share of common stock from continuing
operations  basic and diluted
    
    $
    (0.74
    )
    
    $
    (0.29
    )
    
    $
    (2.27
    )
    
    $
    (0.73
    )Net loss per share of common stock  basic and diluted
    
    $
    (0.72
    )
    
    $
    (0.66
    )
    
    $
    (1.96
    )
    
    $
    (1.50
    )Weighted average shares used in per share
computations  basic and diluted
    
    
    39,845,468
    
    
    
    27,370,997
    
    
    
    32,209,429
    
    
    
    27,128,965
  5




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##### Table of Contents



DDi CORP.
 
    Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss
    
    $
    (26,807
    )
    
    $
    (16,807
    )
    
    $
    (58,368
    )
    
    $
    (38,089
    )Other comprehensive income:Foreign currency translation adjustments
    
    
    324
    
    
    
    171
    
    
    
    504
    
    
    
    387Comprehensive loss
    
    $
    (26,483
    )
    
    $
    (16,636
    )
    
    $
    (57,864
    )
    
    $
    (37,702
    )
  6




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##### Table of Contents



DDi CORP.
 
    Additional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Deferred
    
    
    Stockholder
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Receivables
    
    
    Deficit
    
    
    Income (Loss)
    
    
    TotalBalance, December 31, 2004
    
    
    25,513,522
    
    
    $
    26
    
    
    $
    147,739
    
    
    $
    (9,445
    )
    
    $
    (652
    )
    
    $
    (59,873
    )
    
    $
    (712
    )
    
    $
    77,083Deferred compensation
    
    
    
    
    
    
    
    
    
    
    (4,671
    )
    
    
    4,671
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of
deferred compensation
included in continuing
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,377
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,377Amortization of
deferred compensation
included in
discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (602
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (602
    )Issuance of new common
stock in rights
offering and in standby
purchase agreement
    
    
    99,999,996
    
    
    
    100
    
    
    
    74,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000Costs of incurred in
connection with the
issuance of common
stock
    
    
    
    
    
    
    
    
    
    
    (2,968
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,968
    )Series B preferred
stock beneficial
conversion feature, net
of accretion of $141
and debt issuance costs
of $582
    
    
    
    
    
    
    
    
    
    
    19,610
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,610Issuance of new common
stock upon exercise of
stock options
    
    
    46,571
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23Vesting of restricted
common stock
    
    
    212,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    504
    
    
    
    504Foreign currency
translation recognized
on disposal of DDi
Europe
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    546
    
    
    
    546Accrued interest on
stockholder receivables.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    (13
    )Dividends paid in
common stock on Series
B preferred stock
    
    
    1,482,812
    
    
    
    2
    
    
    
    3,658
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,660Accrual of dividends
payable on Series B
preferred stock,
including 1% redemption
fee of $203
    
    
    
    
    
    
    
    
    
    
    (2,902
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,902
    )Accretion on Series B
preferred stock
    
    
    
    
    
    
    
    
    
    
    (1,627
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,627
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,368
    )
    
    
    
    
    
    
    (58,368
    )Balance, September 30, 2005
    
    
    127,255,401
    
    
    $
    128
    
    
    $
    233,762
    
    
    $
    (3,999
    )
    
    $
    (665
    )
    
    $
    (118,241
    )
    
    $
    338
    
    
    $
    111,323
  7




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##### Table of Contents



DDi CORP.
 
    Nine months endedSeptember 30,2005
    
    
    2004Cash flows from operating activities:Loss from continuing operations
    
    $
    (68,604
    )
    
    $
    (17,219
    )Adjustments to reconcile loss from continuing operations to cash provided by (used in)
operating activities:Depreciation
    
    
    7,311
    
    
    
    7,339Amortization of debt issuance costs and discount
    
    
    525
    
    
    
    1,290Capital senior note accretion
    
    
    28
    
    
    
    581Amortization of intangible assets
    
    
    3,449
    
    
    
    4,218Goodwill impairment
    
    
    54,669
    
    
    
    Non-cash compensation
    
    
    1,377
    
    
    
    14,455Non-cash and accrued restructuring and other related charges
    
    
    3,972
    
    
    
    709Deferred income taxes
    
    
    
    
    
    
    (22
    )Interest income on stockholder receivables
    
    
    (13
    )
    
    
    (13
    )Loss on sale of fixed assets
    
    
    213
    
    
    
    164Change in operating assets and liabilities:Increase in accounts receivable
    
    
    (785
    )
    
    
    (3,633
    )Increase (decrease) in prepaid expenses and other
    
    
    (283
    )
    
    
    15Increase in inventory
    
    
    (48
    )
    
    
    (1,853
    )Increase in accounts payable
    
    
    227
    
    
    
    935Decrease in accrued expenses and other
    
    
    (4,490
    )
    
    
    (5,639
    )Increase in income tax payable
    
    
    1,744
    
    
    
    322Net cash provided by (used in) operating activities from continuing operations
    
    
    (708
    )
    
    
    1,649Net cash used in operating activities from discontinued operations
    
    
    (1,975
    )
    
    
    (4,253
    )Net cash used in operating activities
    
    
    (2,683
    )
    
    
    (2,604
    )Cash flows from investing activities:Purchases of equipment and leasehold improvements
    
    
    (5,395
    )
    
    
    (3,965
    )Proceeds from sale of fixed assets
    
    
    116
    
    
    
    1,510Proceeds from (investment in) restricted cash
    
    
    (3,262
    )
    
    
    7,500Cash outflows related to acquisition earn out
    
    
    (300
    )
    
    
    (475
    )Net cash used in investing activities from discontinued operations
    
    
    (9
    )
    
    
    (3,020
    )Net cash provided by (used in) investing activities
    
    
    (8,850
    )
    
    
    1,550Cash flows from financing activities:Principal payments on capital leases
    
    
    (717
    )
    
    
    (1,103
    )Principal payments on long-term debt
    
    
    
    
    
    
    (71,695
    )Net repayments on revolving credit facility
    
    
    (12,404
    )
    
    
    Refund (payments) of debt issuance costs
    
    
    206
    
    
    
    (2,318
    )Payments on other notes payable
    
    
    
    
    
    
    (500
    )Issuance proceeds (redemption payments) of Series B preferred stock
    
    
    (40,667
    )
    
    
    61,000Costs incurred in connection with issuance of Series B preferred stock
    
    
    
    
    
    
    (3,344
    )Proceeds from issuance of common stock
    
    
    75,000
    
    
    
    15,980Payments of costs incurred in connection with the issuance of common stock
    
    
    (482
    )
    
    
    (1,456
    )Dividends paid on Series B preferred stock
    
    
    (1,987
    )
    
    
    Proceeds from exercise of stock options
    
    
    23
    
    
    
    382Net cash provided by financing activities from discontinued operations
    
    
    885
    
    
    
    1,002Net cash provided by (used in) financing activities
    
    
    19,857
    
    
    
    (2,052
    )Effect of exchange rate changes on cash
    
    
    76
    
    
    
    (204
    )Net increase (decrease) in cash and cash equivalents
    
    
    8,400
    
    
    
    (3,310
    )Cash and cash equivalents, beginning of year
    
    
    23,526
    
    
    
    11,202Cash and cash equivalents, end of period
    
    $
    31,926
    
    
    $
    7,892
  8




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##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
 Basis of Presentation
     Description of Business
  Recently Issued Accounting Standards
   9




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##### Table of Contents



NOTE 2. INVENTORIES
  September 30,
    
    
    December 31,2005
    
    
    2004Raw materials
    
    $
    8,147
    
    
    $
    8,094Work-in-process
    
    
    6,262
    
    
    
    7,020Finished goods
    
    
    2,453
    
    
    
    2,882Total
    
    $
    16,862
    
    
    $
    17,996
 NOTE 3. REVOLVING CREDIT FACILITY, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
  September 30,
    
    
    December 31,2005
    
    
    2004DDI Capital Senior Accreting Notes, due
January 1, 2009, face amount of $18,394 at
September 30, 2005 and December 31, 2004, net
of unamortized discount of $172 and $200,
respectively
    
    $
    18,222
    
    
    $
    18,194Dynamic Details Revolving Credit Facility (a)
    
    
    3,544
    
    
    
    15,948Capital lease obligations
    
    
    256
    
    
    
    974Total
    
    
    22,022
    
    
    
    35,116Less: current maturities
    
    
    (18,478
    )
    
    
    (916
    )Less: Dynamic Details Revolving Credit Facility
    
    
    (3,544
    )
    
    
    (15,948
    )Total non-current liabilities
    
    $
    
    
    
    $
    18,252
 
 (a)
    
    Interest rate is based on prime rate. The effective interest rate as of September 30, 2005,
was 9.75%. 10




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##### Table of Contents



Senior Credit Facility
  Revolving Credit Facility
  Capital Senior Accreting Notes
   11




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##### Table of Contents



NOTE 4. PRODUCT WARRANTY
  Nine months endedSeptember 30,2005Beginning balance
    
    $
    672Current period warranty charges
    
    
    2,238Utilization
    
    
    (2,258
    )Ending balance
    
    $
    652
 NOTE 5. EARNINGS PER SHARE
 Basic and diluted earnings per share
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Loss from continuing operations
    
    $
    (27,303
    )
    
    $
    (6,525
    )
    
    $
    (68,604
    )
    
    $
    (17,219
    )Less: Series B preferred stock
dividends and accretion
    
    
    (1,986
    )
    
    
    (1,332
    )
    
    
    (4,669
    )
    
    
    (2,702
    )Loss from continuing operations
available to common stockholders 
basic and diluted
    
    $
    (29,289
    )
    
    $
    (7,857
    )
    
    $
    (73,273
    )
    
    $
    (19,921
    )Weighted average shares of common
stock outstanding (basic and
diluted)
    
    
    39,845,468
    
    
    
    27,370,997
    
    
    
    32,209,429
    
    
    
    27,128,965Loss from continuing operations per
share of common stock  basic and
diluted
    
    $
    (0.74
    )
    
    $
    (0.29
    )
    
    $
    (2.27
    )
    
    $
    (0.73
    )Net income (loss) from discontinued
operations  basic and diluted
(including gain on disposal of $496
and $11,549 in the three and nine
month periods ended September 30,
2005, respectively)
    
    $
    496
    
    
    $
    (10,282
    )
    
    $
    10,236
    
    
    $
    (20,870
    )Weighted average shares of common
stock outstanding (basic and
diluted)
    
    
    39,845,468
    
    
    
    27,370,997
    
    
    
    32,209,429
    
    
    
    27,128,965Net income (loss) per share of
common stock from discontinued
operations  basic and diluted
    
    $
    0.01
    
    
    $
    (0.37
    )
    
    $
    0.32
    
    
    $
    (0.77
    )Net loss
    
    $
    (26,807
    )
    
    $
    (16,807
    )
    
    $
    (58,368
    )
    
    $
    (38,089
    )Less: Series B preferred stock
dividends and accretion
    
    
    (1,986
    )
    
    
    (1,332
    )
    
    
    (4,669
    )
    
    
    (2,702
    )Net loss available to common
stockholders  basic and diluted
    
    $
    (28,793
    )
    
    $
    (18,139
    )
    
    $
    (63,037
    )
    
    $
    (40,791
    )Weighted average shares of common
stock outstanding (basic and
diluted)
    
    
    39,845,468
    
    
    
    27,370,997
    
    
    
    32,209,429
    
    
    
    27,128,965Net loss per share of common stock
 basic and diluted
    
    $
    (0.72
    )
    
    $
    (0.66
    )
    
    
    (1.96
    )
    
    $
    (1.50
    )
   12




---



##### Table of Contents



NOTE 6. SERIES B MANDATORILY REDEEMABLE PREFERRED STOCK
      NOTE 7. SUBSCRIPTION RIGHTS OFFERING AND STANDBY PURCHASE AGREEMENT
   13




---



##### Table of Contents



NOTE 8. STOCK OPTIONS AND RESTRICTED STOCK
   Cost of
    
    
    Sales and
    
    
    General andGoods Sold
    
    
    Marketing
    
    
    Administration
    
    
    TotalAmortization of
deferred
compensation
    
    $
    701
    
    
    $
    105
    
    
    $
    132
    
    
    $
    938Forfeitures
    
    
    (31
    )
    
    
    (6
    )
    
    
    (1
    )
    
    
    (38
    )Total non-cash
compensation
expense in
continuing
operations
    
    $
    670
    
    
    $
    99
    
    
    $
    131
    
    
    $
    900
  Cost of
    
    
    Sales and
    
    
    General andGoods Sold
    
    
    Marketing
    
    
    Administration
    
    
    TotalAmortization of
deferred
compensation
    
    $
    2,326
    
    
    $
    331
    
    
    $
    555
    
    
    $
    3,212Forfeitures
    
    
    (1,235
    )
    
    
    (581
    )
    
    
    (19
    )
    
    
    (1,835
    )Total non-cash
compensation
expense in
continuing
operations
    
    $
    1,091
    
    
    $
    (250
    )
    
    $
    536
    
    
    $
    1,377
   14




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##### Table of Contents



Three Months ended
    
    
    Nine Months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss available to common stockholders:As reported  basic and diluted
    
    $
    (28.8
    )
    
    $
    (18.1
    )
    
    $
    (63.0
    )
    
    $
    (40.8
    )Less: non-cash compensation expense under FAS
123, net of tax
    
    
    (1.3
    )
    
    
    (4.4
    )
    
    
    (1.9
    )
    
    
    (20.9
    )Add: non-cash compensation expense under APB
25, net of tax
    
    
    0.9
    
    
    
    4.0
    
    
    
    0.8
    
    
    
    16.8Pro Forma  basic and diluted
    
    $
    (29.2
    )
    
    $
    (18.5
    )
    
    $
    (64.1
    )
    
    $
    (44.9
    )Net loss per share of common stock  basic and diluted:As Reported
    
    $
    (0.72
    )
    
    $
    (0.66
    )
    
    $
    (1.96
    )
    
    $
    (1.50
    )Pro Forma
    
    $
    (0.73
    )
    
    $
    (0.68
    )
    
    $
    (1.99
    )
    
    $
    (1.66
    )
 NOTE 9. SEGMENT REPORTING
    Three Months ended
    
    
    Nine Months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales:North America (a)
    
    $
    44,366
    
    
    $
    45,182
    
    
    $
    131,070
    
    
    $
    139,075Asia
    
    
    785
    
    
    
    1,062
    
    
    
    3,698
    
    
    
    3,529Other
    
    
    823
    
    
    
    828
    
    
    
    1,693
    
    
    
    2,417Total
    
    $
    45,974
    
    
    $
    47,072
    
    
    $
    136,461
    
    
    $
    145,021
 
 (a)
    
    Sales to the United States represent the majority of the sales to North America. NOTE 10. GOODWILL AND INTANGIBLES
  15




---



##### Table of Contents



As of September 30, 2005
    
    
    As of December 31, 2004Gross
    
    
    Accumulated
    
    
    Net
    
    
    Gross
    
    
    Accumulated
    
    
    NetAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountIdentifiable intangible assets:Customer relationships
    
    $
    22,990
    
    
    $
    (8,430
    )
    
    $
    14,560
    
    
    $
    22,990
    
    
    $
    (4,981
    )
    
    $
    18,009Backlog
    
    
    1,923
    
    
    
    (1,923
    )
    
    
    
    
    
    
    1,923
    
    
    
    (1,923
    )
    
    
    $
    24,913
    
    
    $
    (10,353
    )
    
    $
    14,560
    
    
    $
    24,913
    
    
    $
    (6,904
    )
    
    $
    18,009
      Nine months endedSeptember 30,2005Beginning balance
    
    $
    99,375Fresh start accounting adjustments
    
    
    (2,861
    )Impairment charges
    
    
    (54,669
    )Ending balance
    
    $
    41,845
 NOTE 11. RESTRUCTURING
   16




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##### Table of Contents



EmployeeTermination
    
    
    Contract
    
    
    Facility
    
    
    Other ExitBenefits
    
    
    Terminations
    
    
    Closure
    
    
    Costs
    
    
    TotalAccrued
restructuring costs
at December 31,
2004
    
    $
    (15
    )
    
    $
    (248
    )
    
    $
    
    
    
    $
    (155
    )
    
    $
    (418
    )Arizona shutdown
    
    
    (581
    )
    
    
    (340
    )
    
    
    (1,100
    )
    
    
    (233
    )
    
    
    (2,254
    )Colorado closure
    
    
    (86
    )
    
    
    (6
    )
    
    
    
    
    
    
    (4
    )
    
    
    (96
    )Other costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (338
    )
    
    
    (338
    )(667
    )
    
    
    (346
    )
    
    
    (1,100
    )
    
    
    (575
    )
    
    
    (2,688
    )Payments
    
    
    665
    
    
    
    447
    
    
    
    17
    
    
    
    659
    
    
    
    1,788Accrued
restructuring costs
at September 30,
2005
    
    $
    (17
    )
    
    $
    (147
    )
    
    $
    (1,083
    )
    
    $
    (71
    )
    
    $
    (1,318
    )
  NOTE 12. COMPREHENSIVE LOSS
  NOTE 13. DISCONTINUED OPERATIONS
   17




---



##### Table of Contents



DDi Europe Statements of Operations
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    
    
    
    $
    25,175
    
    
    $
    7,873
    
    
    $
    75,122Cost of goods sold
    
    
    
    
    
    
    22,887
    
    
    
    6,843
    
    
    
    68,852Gross profit
    
    
    
    
    
    
    2,288
    
    
    
    1,030
    
    
    
    6,270Operating expenses:Sales and marketing
    
    
    
    
    
    
    1,201
    
    
    
    126
    
    
    
    3,763General and administration
    
    
    
    
    
    
    2,564
    
    
    
    1,618
    
    
    
    7,013Goodwill impairment
    
    
    
    
    
    
    7,252
    
    
    
    
    
    
    
    7,252Restructuring and other related charges
    
    
    
    
    
    
    295
    
    
    
    219
    
    
    
    4,809Reorganization expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    410Operating loss
    
    
    
    
    
    
    (9,024
    )
    
    
    (933
    )
    
    
    (16,977
    )Gain on disposal of DDi Europe
    
    
    496
    
    
    
    
    
    
    
    11,549
    
    
    
    Interest expense and other expense (income), net
    
    
    
    
    
    
    1,488
    
    
    
    (380
    )
    
    
    4,543Income (loss) from discontinued operations
before income taxes
    
    
    496
    
    
    
    (10,512
    )
    
    
    10,236
    
    
    
    (21,520
    )Income tax benefit
    
    
    
    
    
    
    230
    
    
    
    
    
    
    
    650Net income (loss) from discontinued operations
    
    $
    496
    
    
    $
    (10,282
    )
    
    $
    10,236
    
    
    $
    (20,870
    )
 NOTE 14. SUBSEQUENT EVENTS
   18




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
    Recently Issued Accounting Standards
    19




---



##### Table of Contents



Discontinuation of European Business
   Results of Operations
 Three Months Ended September 30, 2005 Compared to the Three Months Ended September 30, 2004
 Net Sales
  Non-Cash Compensation Expense
  Gross Profit
  20




---



##### Table of Contents



Sales and Marketing Expenses
  General and Administration Expenses
  Goodwill Impairment
   Restructuring and Reorganization Charges
  Net Interest Expense and Other Expense, Net
  Income Taxes
  Net Loss From Discontinued Operations
  Series B Preferred Stock Dividends and Accretion
  21




---



##### Table of Contents



Nine Months Ended September 30, 2005 Compared to the Nine Months Ended September 30, 2004
 Net Sales
  Non-Cash Compensation Expense
  Gross Profit
  Sales and Marketing Expenses
  General and Administration Expenses
  Goodwill Impairment
   22




---



##### Table of Contents



Restructuring and Reorganization Charges
     Net Interest Expense and Other Expense, Net
  Income Taxes
  Net Loss from, and Gain on Disposition of, Discontinued Operations
  Series B Preferred Stock Dividends and Accretion
  23




---



##### Table of Contents



Liquidity and Capital Resources
 General
   Consolidated Cash and Cash Equivalents and Available Borrowings
 .
 Consolidated Cash Flows
    24




---



##### Table of Contents



Current Indebtedness of the Company
 Dynamic Details Asset-based Credit Facility
  Series B Preferred Stock
     25




---



##### Table of Contents



Contractual Cash Obligations and Commercial Commitments
  
 For the ThreeMonths EndingDecember 31,
    
    
    Year Ending December 31,Commitments
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    TotalDDi Capital Accreting Notes (1)
    
    $
    18.4
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18.4Interest  Capital Accreting Notes
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Series B mandatorily redeemable
preferred stock (2)- Series B
    
    
    
    
    
    
    20.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20.3- Dividends
    
    
    0.3
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2Capital Lease Obligations
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Note payable
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Operating Leases
    
    
    1.5
    
    
    
    5.0
    
    
    
    3.9
    
    
    
    3.3
    
    
    
    2.8
    
    
    
    2.0
    
    
    
    1.4
    
    
    
    19.9Total Commitments
    
    $
    20.8
    
    
    $
    26.5
    
    
    $
    3.9
    
    
    $
    3.3
    
    
    $
    2.8
    
    
    $
    2.0
    
    
    $
    1.4
    
    
    $
    60.7
 
 (1)
    
    On October 21, 2005, the Company redeemed all the outstanding DDi Capital Accreting
Notes together with accrued interest prior to maturity.(2)
    
    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 on September 30, 2006, 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, or
in cash, at the election of the Company. Shares of common stock available to be utilized
for redemption are limited to 10 million shares. As a result of the rights offering, the
carrying value of the Series B Preferred Stock was recorded to additional paid-in-capital
as a beneficial conversion feature (see Note 6 to the Condensed Consolidated Financial
Statements). Factors That May Affect Future Results
 The trading price of our common stock may continue to be volatile.
  26




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##### Table of Contents



We are not in compliance with the minimum bid price requirement of the Nasdaq National Market. We
may consequently be required to implement a reverse stock split in the future. This may increase
volatility in the trading of our stock. If our common stock is delisted from The Nasdaq National
Market, it could further depress our stock price and make it more difficult for us to raise
capital.
   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 .
  27




---



##### 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 September 30, 2006;
    
    to fund redemption of Series B Preferred Stock on September 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.
  28




---



##### 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.
  If we experience excess capacity due to variability in customer demand, our gross margins may
decline.
  29




---



##### Table of Contents



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;
    
    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.
 30




---



##### Table of Contents



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.
  31




---



##### 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.
   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.
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Interest Rate Risk
   Foreign Currency Exchange Risk
  32




---



##### Table of Contents



Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Controls .
 33




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  In re DDi Corp. Securities Litigation
 
 Item 4. Submission of Matters to a Vote of Security Holders
    Votes For
    
    Votes WithheldRobert J. Amman
    
    
    30,360,242
    
    
    
    422,200Robert Guezuraga
    
    
    30,547,076
    
    
    
    235,366Jay B. Hunt
    
    
    30,185,341
    
    
    
    597,101Andrew E. Lietz
    
    
    30,546,541
    
    
    
    235,901Bruce D. McMaster
    
    
    30,275,918
    
    
    
    506,524Steven C. Schlepp
    
    
    30,360,417
    
    
    
    422,025Carl Vertuca, Jr.
    
    
    30,719,752
    
    
    
    62,690
  Votes For
    
    Votes Against
    
    Abstentions
    
    Broker Non-Votes21,803,719
    
    
    111,850
    
    
    
    4,707
    
    
    
    8,862,166
  Votes For
    
    Votes Against
    
    Abstentions
    
    Broker Non-Votes21,672,609
    
    
    243,460
    
    
    
    4,707
    
    
    
    8,862,166
  34




---



##### Table of Contents



Votes For
    
    Votes Against
    
    Abstentions
    
    Broker Non-Votes17,060,360
    
    
    4,602,542
    
    
    
    257,374
    
    
    
    8,862,166
  Votes For
    
    Votes Against
    
    Abstentions
    
    Broker Non-Votes21,516,289
    
    
    64,126
    
    
    
    339,861
    
    
    
    8,862,166
  Votes For
    
    Votes Against
    
    Abstentions
    
    Broker Non-Votes27,757,349
    
    
    1,177,163
    
    
    
    1,847,930
    
    
    
    1
  Votes For
    
    Votes Against
    
    Abstentions
    
    Broker Non-Votes12,634,707
    
    
    6,971,285
    
    
    
    2,314,284
    
    
    
    8,862,166
  Votes For
    
    Votes Against
    
    Abstentions
    
    Broker Non-Votes28,489,018
    
    
    7,367
    
    
    
    2,286,056
    
    
    
    1
 35




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##### Table of Contents



Item 6. Exhibits
 Exhibits.
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of DDi
Corp. (incorporated by reference to the Registrants
Current Report on Form 8-K, filed with the Commission on
December 17, 2003).3.2
    
    Certificate of Designation of DDi Corp. (incorporated by
reference to the Registrants Current Report on Form
8-K, filed with the Commission on December 17, 2003).3.3
    
    Certificate of Designation of Series B Preferred Stock
of DDi Corp. (incorporated by reference to the
Registrants Current Report on Form 8-K, filed with the
Commission on April 7, 2004).3.4
    
    Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of DDi Corp. (incorporated
by reference to the Registrants Current Report on Form
8-K, filed with the Commission on August 10, 2005).3.5
    
    Amended and Restated Bylaws of DDi Corp. (incorporated
by reference to the Registrants Quarterly Report on
Form 10-Q, filed with the Commission on August 9, 2005).10.1
    
    DDi Corp. 2005 Stock Incentive Plan (incorporated by
reference to the Registrants Current Report on Form
8-K, filed with the Commission on August 10, 2005).10.2
    
    Common Stock Purchase Warrant dated September 21, 2005,
with schedule of parties attached (incorporated by
reference to the Registrants Amended Current Report on
Form 8-K/A, filed with the Commission on September 23,
2005).10.3
    
    Registration Rights Agreement dated September 21, 2005
(incorporated by reference to the Registrants Amended
Current Report on Form 8-K/A, filed with the Commission
on September 23, 2005).10.4
    
    Amendment No. 1 to Standby Securities Purchase Agreement
dated September 21, 2005 (incorporated by reference to
the Registrants Amended Current Report on Form 8-K/A,
filed with the Commission on September 23, 2005).31.1
    
    Certification of Chief Executive Officer of DDi Corp.,
pursuant to Rule 13a-14 of the Securities Exchange Act.31.2
    
    Certification of Chief Financial Officer of DDi Corp.,
pursuant to Rule 13a-14 of the Securities Exchange Act.32.1
    
    Certification of Chief Executive Officer of DDi Corp.,
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.32.2
    
    Certification of Chief Financial Officer of DDi Corp.,
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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##### Table of Contents



SIGNATURE
  Date: November 8, 2005
    
    DDi CORP.By:
    
    /s/ MIKEL H. WILLIAMSMikel H. WilliamsSenior Vice President, Chief Financial Officer(Authorized Signatory andPrincipal Financial Officer)
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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of DDi
Corp. (incorporated by reference to the Registrants
Current Report on Form 8-K, filed with the Commission on
December 17, 2003).3.2
    
    Certificate of Designation of DDi Corp. (incorporated by
reference to the Registrants Current Report on Form
8-K, filed with the Commission on December 17, 2003).3.3
    
    Certificate of Designation of Series B Preferred Stock
of DDi Corp. (incorporated by reference to the
Registrants Current Report on Form 8-K, filed with the
Commission on April 7, 2004).3.4
    
    Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of DDi Corp. (incorporated
by reference to the Registrants Current Report on Form
8-K, filed with the Commission on August 10, 2005).3.5
    
    Amended and Restated Bylaws of DDi Corp. (incorporated
by reference to the Registrants Quarterly Report on
Form 10-Q, filed with the Commission on August 9, 2005).10.1
    
    DDi Corp. 2005 Stock Incentive Plan (incorporated by
reference to the Registrants Current Report on Form
8-K, filed with the Commission on August 10, 2005).10.2
    
    Common Stock Purchase Warrant dated September 21, 2005,
with schedule of parties attached (incorporated by
reference to the Registrants Amended Current Report on
Form 8-K/A, filed with the Commission on September 23,
2005).10.3
    
    Registration Rights Agreement dated September 21, 2005
(incorporated by reference to the Registrants Amended
Current Report on Form 8-K/A, filed with the Commission
on September 23, 2005).10.4
    
    Amendment No. 1 to Standby Securities Purchase Agreement
dated September 21, 2005 (incorporated by reference to
the Registrants Amended Current Report on Form 8-K/A,
filed with the Commission on September 23, 2005).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.