The following is a discussion of the financial condition and results of operations for our fiscal quarter and year to date period ended June 30, 2009. As used herein, the "Company," "we," "us," or "our" means DDi Corp. and its wholly-owned subsidiaries. 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, 2008.

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 Annual Report on Form 10-K for the fiscal year ended December 31, 2008 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 U.S. Securities and Exchange Commission ("SEC").

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

We provide time-critical, technologically-advanced printed circuit board ("PCB") engineering and manufacturing services. We specialize in engineering and fabricating complex multi-layer PCBs on a quick-turn basis, with lead times as short as 24 hours, and on manufacturing products with high levels of complexity and reliability with low-to-moderate production volumes. We have approximately 1,000 PCB customers in various market segments including communications, computing, military/aerospace, industrial electronics, instrumentation, medical, and high-durability commercial markets. Our customers include both original equipment manufacturers ("OEMs"), electronic manufacturing services providers, and military/aerospace companies. With such a broad customer base and approximately 40 to 50 new PCB designs tooled per day, we have accumulated significant process and engineering expertise. Our core strength is developing innovative, high-performance solutions for customers during the engineering, test and launch phases of their new electronic product development. Our entire organization is focused on rapidly and reliably filling complex customer orders and building long-term customer relationships. Our engineering capabilities and manufacturing facilities located in the United States and Canada, together with our suppliers in Asia, enable us to respond to time-critical orders and technology challenges for our customers.

Industry Overview

Printed circuit boards are a fundamental component of virtually all electronic equipment. A PCB is comprised of layers of laminate and copper and contains patterns of electrical circuitry to connect electronic components. The level of PCB complexity is determined by several characteristics, including size, layer count, density, materials and functionality. High-end commercial and military/aerospace equipment manufacturers require complex PCBs fabricated with higher layer counts, greater density and advanced materials, and demand highly complex and sophisticated manufacturing capabilities. By contrast, other PCBs, such as those used in non-wireless consumer electronic products, are generally less complex and have less sophisticated manufacturing requirements.

We see several significant trends within the PCB manufacturing industry, including:

• Short product life cycles for electronics. Rapid advances in technology are significantly shortening product life-cycles and placing increased pressure on OEMs to develop new products in shorter periods of time. In response to these pressures, OEMs look to PCB manufacturers to offer design and engineering support and quick-turn manufacturing services to reduce time to market. Many OEMs, in an effort to increase electronic supply chain efficiency, work with a small number of technically qualified suppliers that have sophisticated manufacturing expertise and are able to offer a broad range of PCB products.

• Increasing complexity of electronic equipment. OEMs are continually designing more complex and higher performance electronic equipment, which requires sophisticated PCBs that accommodate higher signal speeds and frequencies and increased component densities and operating temperatures. In turn, OEMs rely on PCB manufacturers that can provide advanced engineering and manufacturing services early in the new product development cycle. OEMs are also requiring more lead-free materials and other "green" products which add to the complexity of the materials utilized in the manufacturing of PCBs.

• Increasing demand for military and aerospace products. The military/aerospace market is characterized by time-consuming and complex certification processes, long product life cycles, and a unique combination of demand for leading-edge technology with extremely high reliability and durability. An increased focus on incorporating technology in products for reconnaissance and intelligence combined with continued spending on military communications, aerospace, and weapons systems applications are anticipated to drive steady end-market growth. Success in the military/aerospace market is generally achieved only after manufacturers demonstrate the long-term ability to pass extensive OEM and government certification processes, numerous product inspections, audits for quality and performance, and extensive administrative requirements associated with participation in government programs. Export controls represent a barrier to entry for international competition as they restrict the overseas export of defense-related materials, services, and sensitive technologies that are associated with government programs. In addition, the complexity of the end products serves as a barrier to entry to potential new suppliers.

• Increased demand volatility in commercial end-markets. As a result of the continued downturn in the global economy, demand for PCBs from the commercial sector, including the communications, computing, industrial electronics, and instrumentation markets, continues to be volatile. Companies operating in these industries, including existing or potential DDi customers, are experiencing deterioration in their businesses, which in turn may cause them to delay or cancel orders from PCB manufacturers. It is still unclear when this downward trend will begin to abate but, until it does, continued demand volatility and softness in the commercial end-markets is expected.

• Shifting of high volume production to Asia. Asian-based PCB manufacturers have been able to capitalize on lower labor costs and to increase their market share in the production of PCBs used in higher-volume consumer electronics applications, such as personal computers and cell phones. Asian-based manufacturers have generally been unable to meet the lead time requirements for the production of complex PCBs on a quick-turn basis.

Results of Operations for the Three Months Ended June 30, 2009 Compared to the
Three Months Ended June 30, 2008

The following tables set forth select data from our Condensed Consolidated
Statements of Operations (in thousands):



                                                   Three Months Ended
                                                        June 30,
                                                  2009            2008         $ Change        % Change
Net sales                                       $  37,177       $ 51,188       $ (14,011 )        (27.4 )%
Cost of goods sold                                 30,498         40,815         (10,317 )        (25.3 )%

Gross profit                                        6,679         10,373          (3,694 )        (35.6 )%
Gross profit as a percentage of net sales            18.0 %         20.3 %

Net Sales

Net sales are derived from the engineering and manufacture of complex, technologically-advanced multi-layer PCBs.

Net sales decreased $14.0 million, or 27.4%, for the second quarter of 2009 compared to the second quarter of 2008. The decrease in net sales was primarily due to a decline in customer demand related to general economic conditions. While net sales decreased in a number of our markets, we experienced continued growth in the military/aerospace market, and this market grew as a percentage of total net sales to approximately 33% for the second quarter of 2009 compared to approximately 19% for the second quarter of 2008.

Gross Profit

Gross profit for the second quarter of 2009 was $6.7 million, or 18.0% of net sales, compared to $10.4 million, or 20.3% of net sales, for the same period in 2008. The decrease in gross profit was primarily due to less efficient absorption of fixed costs on lower net sales.

Non-cash Compensation Expense



                                                     Three Months Ended
                                                          June 30,
                                                     2009         2008
             Non-cash compensation expense:
             Cost of goods sold                    $     135    $     113
             Sales and marketing expenses                 92           70
             General and administrative expenses         290          468

             Total non-cash compensation expense   $     517    $     651

Non-cash compensation expense related to stock awards was recorded in accordance with the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123R, Share-Based Payment ("SFAS 123R").

Sales and Marketing Expenses



                                    Three Months Ended
                                         June 30,
                                    2009           2008         $ Change       % Change
   Sales and marketing expenses   $   2,829       $ 3,192      $     (363 )       (11.4 )%
   Percentage of net sales              7.6 %         6.2 %

Sales and marketing expenses decreased by $363,000, or 11.4%, for the second quarter of 2009 compared to the second quarter of 2008. The dollar decrease was primarily due to lower commissions and management incentives on reduced sales levels. The increase in sales and marketing expenses as a percentage of net sales was primarily due to the lower sales levels.

General and Administrative Expenses



                                                 Three Months Ended
                                                      June 30,
                                                2009            2008          $ Change        % Change
General and administrative expenses           $   2,835        $ 3,332       $     (497 )        (14.9 )%
Percentage of net sales                             7.6 %          6.5 %

General and administrative expenses decreased by $497,000, or 14.9%, for the second quarter of 2009 compared to the second quarter of 2008. The dollar decrease was primarily due to lower compensation expense driven by continued streamlining and centralization of administrative functions, as well as lower non-cash compensation expense and management incentives. The increase in general and administrative expenses as a percentage of net sales was primarily due to the lower sales levels.

Amortization of Intangible Assets

Amortization of intangible assets in 2009 relates to customer relationships identified in connection with the acquisition of Sovereign Circuits, Inc. in the fourth quarter of 2006. These intangibles are being amortized over their estimated useful life of five years resulting in $190,000 of amortization expense per quarter through October 2011. The decrease in amortization expense from $1.3 million in the second quarter of 2008 is due to the customer relationships identified during the allocation of the reorganized value of the Company subsequent to our emergence from bankruptcy in December 2003 becoming fully amortized in the fourth quarter of 2008.

Restructuring and Other Related Charges

The restructuring and other related charges in the second quarter of 2008 of $82,000 were the result of the fees and expenses related to litigation with the landlord of two buildings in connection with the closing of our Arizona facility in 2005. We completed remediation of the Arizona facility (encompassing three separate buildings) and exited the last building in the third quarter of 2006 but had continued expenses related to the litigation through its resolution in December 2008.

Interest Expense

Interest expense consists of amortization of debt issuance costs, fees related to our asset-based revolving credit facility (the "Credit Facility"), interest on our note payable on our Ohio facility, and interest expense associated with long-term leases. Interest expense was essentially flat at $197,000 for the second quarter of 2009 compared to $191,000 for the same period in 2008.

Interest Income

Interest income earned on our cash balances decreased by $24,000 to $52,000 for the second quarter of 2009 from $76,000 for the same period in 2008. Although the Company maintained higher average cash balances during the second quarter of 2009 compared to the same period in 2008, reduced interest rates resulted in an overall reduction in interest income.

Other Expense (Income), Net

Net other expense (income) consists of foreign exchange transaction gains or losses related to our Canadian operations and other miscellaneous non-operating items. For the second quarter of 2009, net other expense was $121,000 compared to net other income of $26,000 in the second quarter of 2008 and was primarily related to the decrease in the average exchange rate in 2009 of the Canadian dollar to the U.S. dollar compared to 2008.

Income Tax Expense

Income tax expense for the second quarter of 2009 was $125,000, or 22.4% of pre-tax income, compared to $831,000, or 35.5% of pre-tax income, for the same period in 2008. The decrease in income tax expense was primarily due to lower pre-tax income. Our effective income tax rate differs from the U.S. federal statutory tax rate of 35% primarily as a result of the mix of earnings between tax jurisdictions, research and development credits, state income taxes and our continuous evaluation of the realization of our deferred tax assets and uncertain tax positions.

Effective January 1, 2009, due to the adoption of SFAS No. 141(revised 2007), Business Combinations ("SFAS 141R"), any reduction of the U.S. valuation allowance that was related to net deferred tax assets that were in existence as of applying fresh-start accounting and any adjustments to uncertain tax positions for years prior to our emergence from bankruptcy in 2003 will now be recognized as a U.S. tax benefit as opposed to a reduction of goodwill and additional-paid-in capital as was done in the past.

Results of Operations for the Six Months Ended June 30, 2009 Compared to the Six months Ended June 30, 2008

The following tables set forth select data from our Condensed Consolidated Statement of Operations (in thousands):

                                                   Six Months Ended
                                                       June 30,
                                                  2009           2008         $ Change        % Change
Net sales                                       $ 76,452       $ 98,540       $ (22,088 )        (22.4 )%
Cost of goods sold                                62,513         78,424         (15,911 )        (20.3 )%

Gross profit                                      13,939         20,116          (6,177 )        (30.7 )%
Gross profit as a percentage of net sales           18.2 %         20.4 %

Net Sales

Net sales decreased $22.1 million, or 22.4%, for the six months ended June 30, 2009 compared to the same period in 2008. The decrease in net sales was primarily due to a decline in customer demand related to general economic conditions. While net sales decreased in a number of our markets, we experienced continued growth in the military/aerospace market, and this market grew as a percentage of total net sales to approximately 33% for the six months ended June 30, 2009 compared to approximately 16% for the same period in 2008.

Gross Profit

Gross profit for the six months ended June 30, 2009 was $13.9 million, or 18.2% of net sales, compared to $20.1 million, or 20.4% of net sales for the same period in 2008. The decrease in gross profit was primarily due to less efficient absorption of fixed costs on lower net sales.

Non-cash Compensation Expense



                                                      Six Months Ended
                                                          June 30,
                                                       2009       2008
              Non-cash compensation expense:
              Cost of goods sold                    $      274   $   242
              Sales and marketing expenses                 180       140
              General and administrative expenses          683       919

              Total non-cash compensation expense   $    1,137   $ 1,301

Non-cash compensation expense related to stock awards was recorded in accordance with the fair value recognition provisions of SFAS 123R.

Sales and Marketing Expenses



                                     Six Months Ended
                                         June 30,
                                     2009         2008         $ Change       % Change
    Sales and marketing expenses   $  5,734      $ 6,468      $     (734 )       (11.3 )%
    Percentage of net sales             7.5 %        6.6 %

Sales and marketing expenses decreased by $734,000, or 11.3%, for the six months ended June 30, 2009 compared to the same period in 2008. The dollar decrease was primarily due to lower commissions as a result of the reduction in sales levels. The increase in sales and marketing expenses as a percentage of net sales was primarily due to the lower sales levels.

General and Administrative Expenses



                                         Six Months Ended
                                             June 30,
                                         2009         2008         $ Change       % Change
 General and administrative expenses   $  6,259      $ 7,170      $     (911 )       (12.7 )%
 Percentage of net sales                    8.2 %        7.3 %

Total general and administrative expenses decreased by $911,000, or 12.7%, for the six months ended June 30, 2009 compared to the six months ended June 30, 2008. The decrease in general and administrative expenses was primarily attributable to lower compensation expense driven by continued streamlining and centralization of administrative functions, as well as lower non-cash compensation and management incentives.

Amortization of Intangible Assets

Amortization of intangible assets in 2009 relates to customer relationships identified in connection with the acquisition of Sovereign Circuits, Inc. in the fourth quarter of 2006. These intangibles are being amortized over their estimated useful life of five years resulting in $190,000 of amortization expense per quarter through October 2011. The decrease in amortization expense from $2.7 million in the first half of 2008 is due to the customer relationships identified during the allocation of the reorganized value of the Company subsequent to our emergence from bankruptcy in December 2003 becoming fully amortized in the fourth quarter of 2008.

Restructuring and Other Related Charges

The restructuring and other related charges in the first half of 2008 of $267,000 were the result of the fees and expenses related to litigation with the landlord of two buildings in connection with the closing of our Arizona facility in 2005. We completed remediation of the Arizona facility (encompassing three separate buildings) and exited the last building in the third quarter of 2006 but had continued expenses related to the litigation through its resolution in December 2008.

Interest Expense

Interest expense consists of amortization of debt issuance costs, fees related to our Credit Facility, interest on the note payable on our Ohio facility, and interest expense associated with long-term leases. Interest expense was $395,000 for the six months ended June 30, 2009, essentially flat compared to expense of $386,000 for the same period in 2008.

Interest Income

Interest income earned on our cash balances decreased to $108,000 for the first six months of 2009 from $232,000 for the same period in 2008. Although the Company maintained higher average cash balances during the first half of 2009 compared to the same period in 2008, reduced interest rates resulted in an overall reduction in interest income.

Other Expense (Income), Net

Net other expense (income) consists of foreign exchange transaction gains or losses related to our Canadian operations and other miscellaneous non-operating items. For the six months ended June 30, 2009, net other expense was $76,000 compared to net other income of $113,000 for the same period in 2008 and was primarily impacted by the decrease in the average exchange rate of the Canadian dollar to the U.S. dollar.

Income Tax Expense

Income tax expense for the six months ended June 30, 2009 was $256,000, or 21.3% of pre-tax income, compared to $1.3 million, or 36.3% of pre-tax income, for the six months ended June 30, 2008. The decrease in income tax expense was primarily due to lower pre-tax income. Our effective income tax rate differs from the U.S. federal statutory tax rate of 35% primarily as a result of the mix of earnings between tax jurisdictions, research and development credits, state income taxes and our continuous evaluation of the realization of our deferred tax assets and uncertain tax positions.

Effective January 1, 2009, due to the adoption of SFAS 141R, any reduction of the U.S. valuation allowance that was related to net deferred tax assets that were in existence as of applying fresh-start accounting and any adjustments to uncertain tax positions for years prior to our emergence from bankruptcy in 2003 will now be recognized as a U.S. tax benefit as opposed to a reduction of goodwill or additional-paid-in capital as was done in the past.

Liquidity and Capital Resources



                                                          June 30,      December 31,
                                                            2009            2008
                                                            (Dollars in thousands)
 Working capital                                         $    41,964   $       37,682
 Current ratio (current assets to current liabilities)     3.6 : 1.0        2.7 : 1.0
 Cash and cash equivalents                               $    23,941   $       20,081
 Short-term borrowings                                   $        -    $           -
 Long-term debt, including current portion               $     1,394   $        1,516

As of June 30, 2009, we had total cash and cash equivalents of $23.9 million. Management defines cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased. We maintain cash and cash equivalents at certain financial institutions in excess of amounts insured by federal agencies. However, management does not believe this concentration subjects the Company to any unusual financial risk beyond the normal risk associated with commercial banking relationships. We frequently monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on safety of principal and secondarily on maximizing yield on those funds.

Our working capital, current ratio and cash and cash equivalents increased from December 31, 2008 primarily due to cash generated from operations partially offset by our investments in capital equipment during the first six months of 2009.

Our principal sources of liquidity to fund ongoing operations have been existing cash on hand, cash generated from operations and, if needed, our Credit Facility, along with proceeds from various equity offerings and asset sales. We believe that our current cash balance, in combination with net cash expected to be generated from operations and the availability of our Credit Facility, will fund ongoing operations for at least the next twelve months. In the event that we require additional funding during the next twelve months, we will attempt to raise capital through either debt or equity arrangements. We cannot provide assurance that the required capital would be available on acceptable terms, if at all, or that any financing activity would not be dilutive to our current stockholders.

Revolving Credit Facility

Availability under our $25 million revolving Credit Facility with General . . .