##### 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, 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
    
    (I.R.S. Employerof incorporation or organization)
    
    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 September 30, 2006
 TABLE OF CONTENTS
 PageNoPART I  FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited):
    
    3Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005
    
    3Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    21Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    35Item 4. Controls and Procedures
    
    35PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    35Item 1A. Risk Factors
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    36Item 3. Defaults Upon Senior Securities
    
    36Item 4. Submission of Matters to a Vote of Security Holders
    
    36Item 5. Other Information
    
    36Item 6. Exhibits
    
    37Signatures
    
    39EXHIBIT 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.
 
  
 September 30,
    
    
    December 31,2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    27,191
    
    
    $
    25,985Restricted cash (see Note 7)
    
    
    
    
    
    
    2,972Accounts receivable, net
    
    
    25,772
    
    
    
    29,710Inventories
    
    
    13,123
    
    
    
    16,117Prepaid expenses and other
    
    
    1,725
    
    
    
    1,506Total current assets
    
    
    67,811
    
    
    
    76,290Property and equipment, net
    
    
    24,584
    
    
    
    31,063Goodwill
    
    
    38,146
    
    
    
    41,845Intangible assets, net
    
    
    9,962
    
    
    
    13,411Other assets
    
    
    646
    
    
    
    1,719Total assets
    
    $
    141,149
    
    
    $
    164,328Liabilities, Mandatorily Redeemable Preferred Stock and Stockholders EquityCurrent liabilities:Revolving credit facility
    
    $
    
    
    
    $
    19,929Accounts payable
    
    
    15,189
    
    
    
    15,443Accrued expenses and other current liabilities
    
    
    15,454
    
    
    
    14,709Total current liabilities
    
    
    30,643
    
    
    
    50,081Other long-term liabilities
    
    
    4,267
    
    
    
    4,745Series A preferred stock
    
    
    
    
    
    
    Total liabilities
    
    
    34,910
    
    
    
    54,826Commitments and contingencies (Note 13)Series B mandatorily redeemable preferred stock
    
    
    3,203
    
    
    
    1,513Stockholders equity:Common stock  $0.001 par value, 190,000,000
shares authorized, 20,625,835 and 18,259,356
shares issued and outstanding at September
30, 2006 and December 31, 2005, respectively
    
    
    21
    
    
    
    18Additional paid-in-capital
    
    
    233,818
    
    
    
    231,821Deferred compensation
    
    
    
    
    
    
    (349
    )Accumulated other comprehensive income
    
    
    182
    
    
    
    346Accumulated deficit
    
    
    (130,985
    )
    
    
    (123,847
    )Total stockholders equity
    
    
    103,036
    
    
    
    107,989Total liabilities, mandatorily redeemable
preferred stock and stockholders equity
    
    $
    141,149
    
    
    $
    164,328
  3




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##### Table of Contents



DDi CORP.
 
  
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    51,374
    
    
    $
    45,974
    
    
    $
    154,838
    
    
    $
    136,461Cost of goods sold:Cost of goods sold
    
    
    42,177
    
    
    
    38,758
    
    
    
    125,039
    
    
    
    114,080Non-cash compensation
    
    
    86
    
    
    
    670
    
    
    
    337
    
    
    
    1,091Restructuring-related inventory
impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,253Total cost of goods sold
    
    
    42,263
    
    
    
    39,428
    
    
    
    125,376
    
    
    
    116,424Gross profit
    
    
    9,111
    
    
    
    6,546
    
    
    
    29,462
    
    
    
    20,037Operating expenses:Sales and marketing:Sales and
marketing expenses
    
    
    3,879
    
    
    
    3,748
    
    
    
    11,885
    
    
    
    10,952Non-cash compensation
    
    
    
    
    
    
    99
    
    
    
    43
    
    
    
    (250
    )Officers severance
    
    
    
    
    
    
    
    
    
    
    240
    
    
    
    Total sales and marketing
    
    
    3,879
    
    
    
    3,847
    
    
    
    12,168
    
    
    
    10,702General and administration:General and administration
expenses
    
    
    3,033
    
    
    
    3,242
    
    
    
    9,916
    
    
    
    9,818Non-cash compensation
    
    
    298
    
    
    
    131
    
    
    
    671
    
    
    
    536Total general and administration
    
    
    3,331
    
    
    
    3,373
    
    
    
    10,587
    
    
    
    10,354Amortization of intangible assets
    
    
    1,150
    
    
    
    1,149
    
    
    
    3,449
    
    
    
    3,448Restructuring and other related charges
    
    
    120
    
    
    
    182
    
    
    
    992
    
    
    
    4,572Litigation reserve
    
    
    
    
    
    
    
    
    
    
    1,727
    
    
    
    Goodwill impairment
    
    
    
    
    
    
    23,540
    
    
    
    
    
    
    
    54,669Loss on sale of assembly business
    
    
    4,544
    
    
    
    
    
    
    
    4,544
    
    
    
    Operating loss
    
    
    (3,913
    )
    
    
    (25,545
    )
    
    
    (4,005
    )
    
    
    (63,708
    )Interest expense, net
    
    
    230
    
    
    
    1,215
    
    
    
    1,092
    
    
    
    3,686Other (income) expense, net
    
    
    35
    
    
    
    383
    
    
    
    (23
    )
    
    
    402Loss from continuing operations
before income taxes
    
    
    (4,178
    )
    
    
    (27,143
    )
    
    
    (5,074
    )
    
    
    (67,796
    )Income tax expense
    
    
    307
    
    
    
    160
    
    
    
    2,064
    
    
    
    808Loss from continuing operations
    
    
    (4,485
    )
    
    
    (27,303
    )
    
    
    (7,138
    )
    
    
    (68,604
    )Income from discontinued operations
    
    
    
    
    
    
    496
    
    
    
    
    
    
    
    10,236Net loss
    
    
    (4,485
    )
    
    
    (26,807
    )
    
    
    (7,138
    )
    
    
    (58,368
    )Less: Series B preferred stock dividends and
accretion
    
    
    (1,798
    )
    
    
    (1,986
    )
    
    
    (5,398
    )
    
    
    (4,669
    )Net loss applicable to common
stockholders
    
    $
    (6,283
    )
    
    $
    (28,793
    )
    
    $
    (12,536
    )
    
    $
    (63,037
    )Loss per share from continuing operations
applicable to common stockholders  basic and
diluted
    
    $
    (0.32
    )
    
    $
    (5.15
    )
    
    $
    (0.67
    )
    
    $
    (15.92
    )Net loss per share applicable to common
stockholders  basic and diluted
    
    $
    (0.32
    )
    
    $
    (5.06
    )
    
    $
    (0.67
    )
    
    $
    (13.70
    )Weighted-average shares used in per share
computations  basic and diluted
    
    
    19,819,165
    
    
    
    5,692,210
    
    
    
    18,807,216
    
    
    
    4,601,347
  4




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DDi CORP.
 
  
 Nine months ended September 30,2006
    
    
    2005Cash flows from operating activities:Loss from continuing operations
    
    $
    (7,138
    )
    
    $
    (68,604
    )Adjustments to reconcile loss from continuing operations to cash provided
by (used in) operating activities:Depreciation
    
    
    7,513
    
    
    
    7,311Amortization of intangible assets
    
    
    3,449
    
    
    
    3,449Amortization of debt issuance costs and discount
    
    
    895
    
    
    
    525Goodwill impairment
    
    
    
    
    
    
    54,669Non-cash compensation
    
    
    1,051
    
    
    
    1,377Non-cash and accrued restructuring and other related charges
    
    
    1,232
    
    
    
    3,972Loss on sale of assembly business
    
    
    4,544
    
    
    
    Other
    
    
    142
    
    
    
    228Change in operating assets and liabilities (net of sale of
assembly business):Accounts receivable
    
    
    (1,556
    )
    
    
    (785
    )Inventories
    
    
    (4,194
    )
    
    
    (48
    )Prepaid expenses and other assets
    
    
    (233
    )
    
    
    (283
    )Accounts payable
    
    
    3,085
    
    
    
    227Accrued expenses and other liabilities
    
    
    (1,722
    )
    
    
    (4,490
    )Income tax payable
    
    
    1,289
    
    
    
    1,744Net cash provided by (used in) operating activities from continuing
operations
    
    
    8,357
    
    
    
    (708
    )Net cash used in operating activities from discontinued operations
    
    
    
    
    
    
    (1,975
    )Net cash provided by (used in) operating activities
    
    
    8,357
    
    
    
    (2,683
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (4,669
    )
    
    
    (5,279
    )Changes in restricted cash
    
    
    2,972
    
    
    
    (3,262
    )Cash outflows related to acquisition earn out
    
    
    
    
    
    
    (300
    )Proceeds from sale of assembly business
    
    
    12,000
    
    
    
    Payment of costs incurred in connection with sale of assembly
business
    
    
    (49
    )
    
    
    Net cash used in investing activities from discontinued operations
    
    
    
    
    
    
    (9
    )Net cash provided by (used in) investing activities
    
    
    10,254
    
    
    
    (8,850
    )Cash flows from financing activities:Proceeds from exercise of Standby Warrants
    
    
    12,085
    
    
    
    Proceeds from issuance of common stock
    
    
    
    
    
    
    75,000Payments of costs incurred with the issuance of common stock
    
    
    
    
    
    
    (482
    )Redemption payments of Series B preferred stock
    
    
    (8,333
    )
    
    
    (40,667
    )Principal payments on capital leases
    
    
    (9
    )
    
    
    (717
    )Net repayments on revolving credit facility
    
    
    (19,929
    )
    
    
    (12,404
    )Refund of debt issuance costs
    
    
    
    
    
    
    206Payment of Series B preferred stock dividend
    
    
    (870
    )
    
    
    (1,987
    )Proceeds from exercise of stock options
    
    
    105
    
    
    
    23Net cash provided by financing activities from discontinued operations
    
    
    
    
    
    
    885Net cash (used in) provided by financing activities
    
    
    (16,951
    )
    
    
    19,857Effect of exchange rate changes on cash and cash equivalents
    
    
    (454
    )
    
    
    76Net increase in cash and cash equivalents
    
    
    1,206
    
    
    
    8,400Cash and cash equivalents, beginning of period
    
    
    25,985
    
    
    
    23,526Cash and cash equivalents, end of period
    
    $
    27,191
    
    
    $
    31,926
  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
  6




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DDi CORP.
 Common Stock Reverse Split
  Recently Adopted Accounting Standards
    Recently Issued Accounting Standards
    7




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##### Table of Contents



DDi CORP.
  NOTE 2. INVENTORIES
  September 30,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    7,054
    
    
    $
    8,630Work-in-process
    
    
    3,449
    
    
    
    5,059Finished goods
    
    
    2,620
    
    
    
    2,428Total
    
    $
    13,123
    
    
    $
    16,117
  NOTE 3. REVOLVING CREDIT FACILITY
   NOTE 4. PRODUCT WARRANTY
  8




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##### Table of Contents



DDi CORP.
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Beginning balance
    
    $
    641
    
    
    $
    672
    
    
    $
    527
    
    
    $
    656Current period warranty charges
    
    
    751
    
    
    
    658
    
    
    
    2,513
    
    
    
    2,238Actual warranty costs incurred
    
    
    (774
    )
    
    
    (678
    )
    
    
    (2,422
    )
    
    
    (2,242
    )Ending balance
    
    $
    618
    
    
    $
    652
    
    
    $
    618
    
    
    $
    652
 NOTE 5. NET INCOME (LOSS) PER SHARE
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Loss from continuing operations
    
    $
    (4,485
    )
    
    $
    (27,303
    )
    
    $
    (7,138
    )
    
    $
    (68,604
    )Less: Series B preferred stock dividends
and accretion
    
    
    (1,798
    )
    
    
    (1,986
    )
    
    
    (5,398
    )
    
    
    (4,669
    )Loss from continuing operations
applicable to common stockholders
    
    $
    (6,283
    )
    
    $
    (29,289
    )
    
    $
    (12,536
    )
    
    $
    (73,273
    )Weighted-average shares of common stock
outstanding (basic and diluted)
    
    
    19,819,165
    
    
    
    5,692,210
    
    
    
    18,807,216
    
    
    
    4,601,347Loss per share from continuing operations
applicable to common stockholders
    
    $
    (0.32
    )
    
    $
    (5.15
    )
    
    $
    (0.67
    )
    
    $
    (15.92
    )Net income from discontinued operations,
net of tax
    
    $
    
    
    
    $
    496
    
    
    $
    
    
    
    $
    10,236Weighted-average shares of common stock
outstanding (basic and diluted)
    
    
    19,819,165
    
    
    
    5,692,210
    
    
    
    18,807,216
    
    
    
    4,601,347Net income per share of common stock from
discontinued operations
    
    $
    
    
    
    $
    0.09
    
    
    $
    
    
    
    $
    2.22Net loss
    
    $
    (4,485
    )
    
    $
    (26,807
    )
    
    $
    (7,138
    )
    
    $
    (58,368
    )Less: Series B preferred stock dividends
and accretion
    
    
    (1,798
    )
    
    
    (1,986
    )
    
    
    (5,398
    )
    
    
    (4,669
    )Net loss applicable to common stockholders
    
    $
    (6,283
    )
    
    $
    (28,793
    )
    
    $
    (12,536
    )
    
    $
    (63,037
    )Weighted average shares of common stock
outstanding (basic and diluted)
    
    
    19,819,165
    
    
    
    5,692,210
    
    
    
    18,807,216
    
    
    
    4,601,347Net loss per share applicable to common
stockholders
    
    $
    (0.32
    )
    
    $
    (5.06
    )
    
    $
    (0.67
    )
    
    $
    (13.70
    )
   NOTE 6. SERIES B MANDATORILY REDEEMABLE PREFERRED STOCK
  9




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DDi CORP.
      10




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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;
    
    eliminate upon the completion of a Qualified Rights Offering, 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.
      11




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DDi CORP.
  NOTE 7. SUBSCRIPTION RIGHTS OFFERING AND STANDBY PURCHASE AGREEMENT
   NOTE 8. STOCK-BASED COMPENSATION
 Stock-Based Compensation Plans
    12




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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
    
    
    766,000
    
    
    $
    7.80Exercised
    
    
    (57,385
    )
    
    $
    1.84Forfeited
    
    
    (228,946
    )
    
    $
    14.72Balance as of
September 30, 2006
    
    
    1,644,505
    
    
    $
    10.33
    
    
    
    9.5
    
    
    $
    1,433Options exercisable
as of September 30,
2006
    
    
    256,204
    
    
    $
    29.82
    
    
    
    7.7
    
    
    $
    132
  Accelerated Vesting of Certain Stock Options
  Adoption of SFAS 123-R
   13




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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
 Expected Forfeiture Rate
 Fair Value
 September 30,2006Expected term (years)
    
    
    4Expected stock price volatility
    
    
    70.2
    %Expected dividend yield
    
    
    0
    %Risk-free interest rate
    
    
    4.6
    %Expected forfeiture rate
    
    
    10
    %Weighted average fair value per share
    
    $
    4.54
 14




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##### Table of Contents



DDi CORP.
   September 30,
    
    September 30,2006
    
    2005Expected term (years)
    
    
    4
    
    
    
    4Expected stock price volatility
    
    
    73.6
    %
    
    
    60.0
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    5.1
    %
    
    
    4.0
    %Expected forfeiture rate
    
    
    10
    %
    
    
    10
    %Weighted average fair value per share
    
    $
    4.56
    
    
    $
    8.83
 Stock Compensation Expense
    Three months
    
    
    Nine monthsended
    
    
    endedSeptember 30,
    
    
    September 30,2005
    
    
    2005Net loss applicable to common stockholders:As reported  basic and diluted
    
    $
    (28,793
    )
    
    $
    (63,037
    )Add: non-cash compensation credit under APB 25, net of tax
    
    
    900
    
    
    
    775Less: non-cash compensation (expense) under FAS 123, net of tax
    
    
    (1,315
    )
    
    
    (1,928
    )Pro forma  basic and diluted
    
    $
    (29,208
    )
    
    $
    (64,190
    )Net loss per share applicable to common stockholders  basic and diluted:As reported basic and diluted
    
    $
    (5.06
    )
    
    $
    (13.70
    )Pro forma basic and diluted
    
    $
    (5.13
    )
    
    $
    (13.95
    )
 NOTE 9. SEGMENT REPORTING
  15




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##### Table of Contents



DDi CORP.
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales:North America (a)
    
    $
    47,168
    
    
    $
    44,366
    
    
    $
    143,254
    
    
    $
    131,070Asia
    
    
    2,878
    
    
    
    785
    
    
    
    8,919
    
    
    
    3,698Other
    
    
    1,328
    
    
    
    823
    
    
    
    2,665
    
    
    
    1,693Total
    
    $
    51,374
    
    
    $
    45,974
    
    
    $
    154,838
    
    
    $
    136,461
 
 (a)
    
    The majority of sales in North America represent sales to customers located in the United
States. NOTE 10. GOODWILL AND INTANGIBLES
     16




---



##### Table of Contents



DDi CORP.
 NOTE 11. RESTRUCTURING
     EmployeeTermination
    
    
    Contract
    
    
    Facility
    
    
    Other ExitBenefits
    
    
    Terminations
    
    
    Closure
    
    
    Costs
    
    
    TotalAccrued
restructuring costs
at December 31,
2005
    
    $
    
    
    
    $
    16
    
    
    $
    999
    
    
    $
    67
    
    
    $
    1,082Additional accruals:Arizona closure
    
    
    43
    
    
    
    347
    
    
    
    433
    
    
    
    152
    
    
    
    975Colorado closure
    
    
    6
    
    
    
    15
    
    
    
    
    
    
    
    4
    
    
    
    25Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    (8
    )Payments
    
    
    (49
    )
    
    
    (378
    )
    
    
    (1,398
    )
    
    
    (215
    )
    
    
    (2,040
    )Accrued
restructuring costs
at September 30,
2006
    
    $
    
    
    
    $
    
    
    
    $
    34
    
    
    $
    
    
    
    $
    34
  NOTE 12. COMPREHENSIVE INCOME
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net loss
    
    $
    (4,485
    )
    
    $
    (26,807
    )
    
    $
    (7,138
    )
    
    $
    (58,368
    )Other comprehensive loss:
Foreign currency translation
    
    
    (28
    )
    
    
    324
    
    
    
    (164
    )
    
    
    504Comprehensive loss
    
    $
    (4,513
    )
    
    $
    (26,483
    )
    
    $
    (7,302
    )
    
    $
    (57,864
    )
 17




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##### Table of Contents



DDi CORP.
 NOTE 13. COMMITMENTS AND CONTINGENCIES
 In re DDi Corp. Securities Litigation,
  18




---



##### Table of Contents



DDi CORP.
   NOTE 14. SALE OF ASSEMBLY BUSINESS
    19




---



##### Table of Contents



DDi CORP.
 NOTE 15. SUBSEQUENT EVENTS
 Acquisition of Sovereign Circuits
  Repurchase of Series B Preferred Stock
  20




---



##### 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 and year to date period ended September 30, 2006. As used herein, the Company, we,
us, or our means DDi Corp. and its wholly-owned subsidiaries, including DDi Intermediate
Holdings Corp., 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 10-Qs 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; risks associated with
acquisitions; 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
   21




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##### Table of Contents



Market Overview
  
    
    Increasing customer demand for quick-turn production.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 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
  Three months ended
    
    
    
    
    
    
    
    
    
    Nine months endedSeptember 30,
    
    September 30,
    
    $
    
    %
    
    September 30,
    
    September 30,
    
    $
    
    %2006
    
    2005
    
    Change
    
    Change
    
    2006
    
    2005
    
    Change
    
    ChangeNet sales
    
    $
    51,374
    
    
    $
    45,974
    
    
    $
    5,400
    
    
    
    11.7
    %
    
    $
    154,838
    
    
    $
    136,461
    
    
    $
    18,377
    
    
    
    13.5
    %Cost of goods sold
    
    
    42,263
    
    
    
    39,428
    
    
    
    2,835
    
    
    
    7.2
    %
    
    
    125,376
    
    
    
    116,424
    
    
    
    8,952
    
    
    
    7.7
    %Gross profit
    
    
    9,111
    
    
    
    6,546
    
    
    
    2,565
    
    
    
    39.2
    %
    
    
    29,462
    
    
    
    20,037
    
    
    
    9,425
    
    
    
    47.0
    %Gross profit as a
percentage of net
sales
    
    
    17.7
    %
    
    
    14.2
    %
    
    
    
    
    
    
    
    
    

    19.0
    %
    
    
    14.7
    %
 22




---



##### Table of Contents



Net Sales
    Gross Profit
   Non-Cash Compensation
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Non-cash compensation:Cost of good sold
    
    $
    86
    
    
    $
    670
    
    
    $
    337
    
    
    $
    1,091Sales and marketing expenses
    
    
    
    
    
    
    99
    
    
    
    43
    
    
    
    (250
    )General and administrative expenses
    
    
    298
    
    
    
    131
    
    
    
    671
    
    
    
    536Total non-cash compensation
    
    $
    384
    
    
    $
    900
    
    
    $
    1,051
    
    
    $
    1,377
  23




---



##### Table of Contents



Sales and Marketing Expenses
  Three months ended
    
    
    
    
    
    
    
    
    
    Nine months endedSeptember 30,
    
    September 30,
    
    
    
    
    
    
    
    
    
    September 30,
    
    September 30,
    
    $
    
    %2006
    
    2005
    
    $ Change
    
    % Change
    
    2006
    
    2005
    
    Change
    
    ChangeSales and
marketing expenses
    
    $
    3,879
    
    
    $
    3,847
    
    
    $
    32
    
    
    
    0.8
    %
    
    $
    12,168
    
    
    $
    10,702
    
    
    
    1,466
    
    
    
    13.7
    %Percentage of net sales
    
    
    7.6
    %
    
    
    8.4
    %
    
    
    
    
    
    
    
    
    
    
    7.9
    %
    
    
    7.8
    %
   General and Administration Expenses
  Three months ended
    
    
    
    
    
    
    
    
    
    Nine months endedSeptember 30,
    
    September 30,
    
    
    
    
    
    
    
    
    
    September 30,
    
    September 30,
    
    $
    
    %2006
    
    2005
    
    $ Change
    
    % Change
    
    2006
    
    2005
    
    Change
    
    ChangeGeneral and
administration expenses
    
    $
    3,331
    
    
    $
    3,373
    
    
    $
    (42
    )
    
    
    (1.2
    %)
    
    $
    10,587
    
    
    $
    10,354
    
    
    $
    233
    
    
    
    2.3
    %Percentage of net sales
    
    
    6.5
    %
    
    
    7.3
    %
    
    
    
    
    
    
    
    
    
    
    6.8
    %
    
    
    7.6
    %
   24




---



##### Table of Contents



Loss on Sale of Assembly Business
  Litigation Reserve
  Amortization of Intangibles
  Restructuring
   25




---



##### Table of Contents



EmployeeTermination
    
    
    Contract
    
    
    Facility
    
    
    Other ExitBenefits
    
    
    Terminations
    
    
    Closure
    
    
    Costs
    
    
    TotalAccrued restructuring costs at June 30, 2006
    
    $
    
    
    
    $
    
    
    
    $
    447
    
    
    $
    57
    
    
    $
    504Additional accruals:Arizona closure
    
    
    19
    
    
    
    35
    
    
    
    
    
    
    
    60
    
    
    
    114Colorado closure
    
    
    2
    
    
    
    3
    
    
    
    
    
    
    
    2
    
    
    
    7Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Payments
    
    
    (21
    )
    
    
    (38
    )
    
    
    (413
    )
    
    
    (118
    )
    
    
    (590
    )Accrued restructuring costs at September 30, 2006
    
    $
    
    
    
    $
    
    
    
    $
    34
    
    
    $
    
    
    
    $
    34
  EmployeeTermination
    
    
    Contract
    
    
    Facility
    
    
    Other ExitBenefits
    
    
    Terminations
    
    
    Closure
    
    
    Costs
    
    
    TotalAccrued
restructuring costs
at December 31,
2005
    
    $
    
    
    
    $
    16
    
    
    $
    999
    
    
    $
    67
    
    
    $
    1,082Additional accruals:Arizona closure
    
    
    43
    
    
    
    347
    
    
    
    433
    
    
    
    152
    
    
    
    975Colorado closure
    
    
    6
    
    
    
    15
    
    
    
    
    
    
    
    4
    
    
    
    25Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    (8
    )Payments
    
    
    (49
    )
    
    
    (378
    )
    
    
    (1,398
    )
    
    
    (215
    )
    
    
    (2,040
    )Accrued
restructuring costs
at September 30,
2006
    
    $
    
    
    
    $
    
    
    
    $
    34
    
    
    $
    
    
    
    $
    34
  Goodwill Impairment
  Interest expense, net
   26




---



##### Table of Contents



Other (Income) Expense, Net
   Income Tax Expense
   Series B Preferred Stock Dividends and Accretion
    27




---



##### Table of Contents



Net Income From Discontinued Operations
  Liquidity and Capital Resources
 (Dollars in thousands)September 30,
    
    December 31,2006
    
    2005Working capital
    
    $
    37,168
    
    
    $
    26,209Current ratio (current assets to current liabilities)
    
    
    2.21 : 1.0
    
    
    
    1.52 : 1.0Cash and cash equivalents (excluding restricted cash at December 31, 2005)
    
    $
    27,191
    
    
    $
    25,985Short term borrowings
    
    $
    
    
    
    $
    19,929
     Revolving Credit Facility
  28




---



##### Table of Contents



Series B Preferred Stock
   
 29




---



##### 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;
    
    eliminate upon the completion of a Qualified Rights Offering, 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.
   30




---



##### Table of Contents



Acquisition of Sovereign Circuits
  Sovereign Circuits Revolving Line of Credit
  Sovereign Circuits Capital Expenditures Line of Credit
  31




---



##### Table of Contents



Consolidated Cash Flows
  Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005Net cash provided by (used in):Operating activities from continuing operations
    
    $
    8,357
    
    
    $
    (708
    )Investing activities from continuing operations
    
    
    10,254
    
    
    
    (8,841
    )Financing activities from continuing operations
    
    
    (16,951
    )
    
    
    18,972Effect of exchange rates on cash
    
    
    (454
    )
    
    
    76Effect of discontinued operations on cash
    
    
    
    
    
    
    (1,099
    )Net increase in cash and cash equivalents
    
    $
    1,206
    
    
    $
    8,400
    Critical Accounting Policies and Estimates
   Revenue recognition
 32




---



##### Table of Contents



Valuation of long-lived assets
 Goodwill impairment
 Inventory obsolescence
 Receivables and Allowance for Doubtful Accounts
 Income taxes
 Stock-Based Compensation
 Litigation and other contingencies
 33




---



##### Table of Contents



Recently Adopted Accounting Standards
    Recently Issued Accounting Standards
     34




---



##### 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
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  35




---



##### Table of Contents



SMDI
v. Laminate Technologies Corp.
 
 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
  36




---



##### Table of Contents



Item 6. 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 and incorporated herein by reference3.2
    
    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 and incorporated herein by reference3.3
    
    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 and incorporated herein by reference3.4
    
    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 and incorporated herein by reference3.5
    
    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 and incorporated
herein by reference.3.6
    
    Amended and Restated Bylaws of DDi Corp. previously filed with the
Commission on August 9, 2005 as an exhibit to DDi Corp.s Quarterly
Report on Form 10-Q and incorporated herein by reference.Material Contracts Relating to Management Compensation Plans or Arrangements10.1
    
    Separation Agreement and Release dated October 2, 2006 between DDi Corp.
and Brad Tesch, previously filed with the Commission on October 5, 2006
as an exhibit to DDi Corp.s Current Report on Form 8-K, which is
incorporated herein by reference.10.2
    
    Independent Director Compensation Policy, previously filed with the
Commission on October 23, 2006 as an exhibit to DDi Corp.s Current
Report on Form 8-K, which is incorporated herein by reference.Other Material Contracts10.3
    
    Agreement and Plan of Merger dated August 8, 2006, by and among DDi
Corp., DDi Acquisition Corp., Sovereign Circuits, Inc., Beverly John
Berryman, Hugh David Turner and Carole Fahy, as trustees of a settlement
dated December 21, 1965 and made between Herbert Anthony Cann, Kenneth
Robert Woodford and John Michael Geoffrey Andrews and a Deed of
Appointment dated October 6, 1976 by Kenneth Robert Woodford and Michael
Geoffrey Andrews, together a trust formed under English law, Beverly John
Berryman, Hugh David Turner and Carole Fahy, as trustees of a settlement
dated September 10, 1985 and made between Tonio Christian Hoch as settlor
and Bermuda Trust Company Limited as original trustee, which is a trust
established under Bermuda law and known as the Hoch Settlement, and
Robert Q. Buss, an individual, previously filed with the Commission on
October 30, 2006 as an exhibit to DDi Corp.s Current Report on Form 8-K,
which is incorporated herein by reference.10.4
    
    Asset Purchase Agreement dated August 8, 2006, by and among Dynamic
Details Incorporated, Silicon Valley, solely for the purpose of
guaranteeing the performance of all obligations of Dynamic Details
Incorporated, Silicon Valley under Section 8.2 of the Asset Purchase
Agreement, Dynamic Details, Incorporated, VMS, LLC and, solely for the
purpose of guaranteeing the performance of all obligations of VMS, LLC
under Section 8.3 of the Asset Purchase Agreement, VERITEK Manufacturing
Services, LLC, previously filed with the Commission on October 30, 2006
as an exhibit to DDi Corp.s Current Report on Form 8-K, which is
incorporated herein by reference.10.5
    
    Letter Agreement dated September 29, 2006 by and among Dynamic Details
Incorporated, Silicon Valley, Dynamic Details, Incorporated, VMS, LLC and
VERITEK Manufacturing Services, LLC, previously filed with the Commission
on October 5, 2006 as an exhibit to DDi Corp.s Current Report on Form
8-K, which is incorporated herein by reference.
 37




---



##### Table of Contents



Exhibit No.
    
    Description31.1
    
    Certification of Chief Executive Officer of DDi Corp., pursuant to Rule
13a-14(a) of the Securities Exchange Act.31.2
    
    Certification of Chief Financial Officer of DDi Corp., pursuant to Rule
13a-14(a) 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.
 38




---



##### Table of Contents



SIGNATURES
  DDi CORP.Date: November 9, 2006
    
    /s/ MIKEL H. WILLIAMSMikel H. WilliamsPresident and Chief Executive OfficerDate: November 9, 2006
    
    /s/ SALLY L. GOFFSally L. GoffChief Financial Officer
 39




---



##### Table of Contents



Exhibit Index
 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 and incorporated herein by reference3.2
    
    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 and incorporated herein by reference3.3
    
    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 and incorporated herein by reference3.4
    
    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 and incorporated herein by reference3.5
    
    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 and incorporated
herein by reference.3.6
    
    Amended and Restated Bylaws of DDi Corp. previously filed with the
Commission on August 9, 2005 as an exhibit to DDi Corp.s Quarterly
Report on Form 10-Q and incorporated herein by reference.Material Contracts Relating to Management Compensation Plans or Arrangements10.1
    
    Separation Agreement and Release dated October 2, 2006 between DDi Corp.
and Brad Tesch, previously filed with the Commission on October 5, 2006
as an exhibit to DDi Corp.s Current Report on Form 8-K, which is
incorporated herein by reference.10.2
    
    Independent Director Compensation Policy, previously filed with the
Commission on October 23, 2006 as an exhibit to DDi Corp.s Current
Report on Form 8-K, which is incorporated herein by reference.Other Material Contracts10.3
    
    Agreement and Plan of Merger dated August 8, 2006, by and among DDi
Corp., DDi Acquisition Corp., Sovereign Circuits, Inc., Beverly John
Berryman, Hugh David Turner and Carole Fahy, as trustees of a settlement
dated December 21, 1965 and made between Herbert Anthony Cann, Kenneth
Robert Woodford and John Michael Geoffrey Andrews and a Deed of
Appointment dated October 6, 1976 by Kenneth Robert Woodford and Michael
Geoffrey Andrews, together a trust formed under English law, Beverly John
Berryman, Hugh David Turner and Carole Fahy, as trustees of a settlement
dated September 10, 1985 and made between Tonio Christian Hoch as settlor
and Bermuda Trust Company Limited as original trustee, which is a trust
established under Bermuda law and known as the Hoch Settlement, and
Robert Q. Buss, an individual, previously filed with the Commission on
October 30, 2006 as an exhibit to DDi Corp.s Current Report on Form 8-K,
which is incorporated herein by reference.10.4
    
    Asset Purchase Agreement dated August 8, 2006, by and among Dynamic
Details Incorporated, Silicon Valley, solely for the purpose of
guaranteeing the performance of all obligations of Dynamic Details
Incorporated, Silicon Valley under Section 8.2 of the Asset Purchase
Agreement, Dynamic Details, Incorporated, VMS, LLC and, solely for the
purpose of guaranteeing the performance of all obligations of VMS, LLC
under Section 8.3 of the Asset Purchase Agreement, VERITEK Manufacturing
Services, LLC, previously filed with the Commission on October 30, 2006
as an exhibit to DDi Corp.s Current Report on Form 8-K, which is
incorporated herein by reference.10.5
    
    Letter Agreement dated September 29, 2006 by and among Dynamic Details
Incorporated, Silicon Valley, Dynamic Details, Incorporated, VMS, LLC and
VERITEK Manufacturing Services, LLC, previously filed with the Commission
on October 5, 2006 as an exhibit to DDi Corp.s Current Report on Form
8-K, which is incorporated herein by reference.
 40




---



##### Table of Contents



Exhibit No.
    
    Description31.1
    
    Certification of Chief Executive Officer of DDi Corp., pursuant to Rule
13a-14(a) of the Securities Exchange Act.31.2
    
    Certification of Chief Financial Officer of DDi Corp., pursuant to Rule
13a-14(a) 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.
 41