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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2004

OR

For the transition period from              to             

Commission File Number: 000-30241

DDi CORP.

(Exact name of registrant as specified in its charter)

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)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    x  Yes    ¨  No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

Indicate by check mark whether the registrant has filed all documents and reports to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    x  Yes    ¨  No

As of November 5, 2004, DDi Corp. had 25,463,119 shares of common stock, par value $0.001 per share, outstanding.

Table of Contents

DDi CORP.

FORM 10-Q for the Quarterly Period Ended September 30, 2004

TABLE OF CONTENTS

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FORWARD-LOOKING STATEMENTS

On one or more occasions, we may make statements regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q 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.

Words or phrases such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “targets,” “will likely result,” “will continue,” “may,” “could” or similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed. We caution that while we make such statements in good faith and we believe such statements are based on reasonable assumptions, including without limitation, management’s examination of historical operating trends, data contained in records and other data available from third parties, we cannot assure you that our expectations will be realized.

In addition to the factors and other matters discussed under the caption “Factors That May Affect Future Results” in Part 1 – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q, some important factors that could cause actual results or outcomes for DDi Corp. or our subsidiaries to differ materially from those discussed in forward-looking statements include:

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.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

DDi CORP.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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DDi CORP.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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DDi CORP.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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DDi CORP.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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DDi CORP.

Notes to the Condensed Consolidated Financial Statements

September 30, 2004

NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

Basis of Presentation

The unaudited condensed consolidated financial statements for DDi Corp. include the accounts of its wholly owned subsidiaries, DDi Intermediate Holdings Corp. (“Intermediate”) and DDi Europe Limited (“DDi Europe” f/k/a MCM Electronics Limited (“MCM”)) and the direct and indirect subsidiaries of Intermediate (including DDi Capital Corp. or “DDi Capital” and Dynamic Details Incorporated or “Dynamic Details”). Collectively, DDi Corp. and its subsidiaries are referred to as the “Company.”

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary (consisting only of normal recurring adjustments) to present fairly the financial position of DDi Corp. and its subsidiaries as of September 30, 2004, the results of operations for the three and nine months ended September 30, 2004 and 2003 and cash flows for the nine months ended September 30, 2004 and 2003. The results of operations for such interim periods are not necessarily indicative of results of operations to be expected for the full year.

These financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such regulations, although the Company believes the disclosures provided are adequate to prevent the information presented from being misleading. This report on Form 10-Q for the quarter ended September 30, 2004 should be read in conjunction with the audited financial statements presented in DDi Corp.’s Annual Report on Form 10-K for the year ended December 31, 2003.

Description of Business

The Company is a leading provider of time-critical, technologically advanced, electronics manufacturing services. Headquartered in Anaheim, California, the Company offers fabrication and assembly services to customers on a global basis, from its facilities located across North America and in England.

Fresh Start Accounting

In connection with DDi Corp.’s emergence from bankruptcy, the Company adopted “fresh-start” accounting principles prescribed by the American Institute of Certified Public Accountants’ Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” effective November 30, 2003. Under fresh start accounting, a new reporting entity, known as “Reorganized DDi Corp.” or the “Successor Company”, is deemed to be created, and the recorded amounts of assets and liabilities are adjusted to reflect their fair value. Accordingly, the operating results and cash flows of the Successor Company and the Predecessor Company have been separately disclosed. For the purposes of these financial statements, references to “Predecessor DDi Corp.” or the “Predecessor Company” are references to the Company for periods prior to December 1, 2003 and references to the “Successor Company” are references to the Company for periods subsequent to November 30, 2003. The Successor Company’s financial statements are not comparable to the Predecessor Company’s financial statements. Although December 2, 2003, was the date the bankruptcy court approved the Company’s plan of reorganization and December 12, 2003, was the effective date of the plan of reorganization (and the date of the Company’s emergence from bankruptcy), for financial reporting convenience purposes, the Company accounted for the consummation of the plan of reorganization as of November 30, 2003. The impact of this was not material to these financial statements. There were no material unsatisfied conditions to the plan of reorganization as of December 2, 2003.

DDi Europe Operations

As of September 30, 2004, DDi Europe had substantially drawn on the total amount of funds practically available under the DDi Europe revolving credit facility. Substantially all of the assets of DDi Europe are pledged as security under the DDi Europe facilities agreement. Due to restrictions set forth in the Dynamic Details revolving credit facility and the DDi Capital senior accreting notes, the Company is not able to make additional cash contributions to address the working capital needs of DDi Europe without the consent of our North American lenders and the Senior Accreting Noteholders. After considering its alternatives, the Board of Directors of DDi Corp. has concluded that the valuation of DDi Europe does not justify the Company to make further investment. Accordingly, to the extend that DDi Europe is unable to generate cash sufficient to fund its operations or restructure its credit facility with its lender, DDi Europe must seek alternative funding sources (including, but not limited to, seeking funds from the lender in excess of the £7.4 million working capital credit limit practically imposed by the lender) and/or take steps to restructure its operations. If its lender, in an attempt to protect its collateral, makes a demand for payment and DDi Europe does not have sufficient funds on hand to make the payment, the lender would have the right to exercise its remedies under the DDi Europe credit facility, including the right to have a receiver appointed for DDi Europe or to commence insolvency proceedings. In that event, based upon the current valuation, there would not likely be sufficient funds to satisfy the obligations under the Series A preferred stock (which look solely to DDi Europe value) or provide any funds to the Company. Such action by the lender could have an adverse effect upon the value of the Company’s common stock as well as upon our customers’ and vendors’ willingness to do business with the Company’s UK-based operations. There is no guarantee that DDi Europe will be able to generate cash sufficient to fund its operations or to seek other forms of capital or debt. DDi Europe comprises $75.1 million (34%) in net sales, $6.3 million (24%) in gross profit and $18.7 million (50%.) in net loss of DDi Corp’s consolidated statement of operations for the nine months ended September 30, 2004. In addition, DDi Europe comprises $34.7 million (39%) in total in total current assets, $61.7 million (22%) in total assets and $71.9 million (53%) in total liabilities of DDi Corp’s consolidated balance sheet as of September 30, 2004.

Recently Issued Accounting Standards

In April 2004, the Emerging Issues Task Force (“EITF”) issued EITF 03-6, Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share. EITF 03-6 addresses a number of questions regarding the computation of earning per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company when, and if, it declares dividends on its common stock. The issue also provides further guidance in applying the two-class method of calculating earnings per share, clarifying what constitutes a participating security and how to apply the two-class method of computing earnings per share once it is determined that a security is participating, including how to allocate undistributed earnings to such a security. EITF 03-6 is effective for fiscal periods beginning after March 31, 2004 and is required to be retroactively applied. There was no impact from the adoption of EITF 03-6 on the Company’s earnings per share for the periods presented as the Company has incurred net operating losses during the three and nine months ended September 30, 2004 and September 30, 2003, respectively, therefore the effect would be anti-dilutive.

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DDi CORP.

Notes to the Condensed Consolidated Financial Statements

September 30, 2004

In September 2004, the Emerging Issues Task Force finalized its consensus on EITF Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings Per Share” (EITF 04-8). EITF 04-8 addresses when the dilutive effect of contingently convertible debt with a market price trigger should be included in diluted earnings per share (EPS). Under EITF 04-8, the market price contingency should be ignored and these securities should be treated as non-contingent, convertible securities and always included in the diluted EPS computation. EITF 04-8 requires these securities be included in diluted EPS using either the if-converted method or the net share settlement method, depending on the conversion terms of the security. EITF 04-8 is effective for all periods ending after December 15, 2004 and is to be applied by retrospectively restating previously reported EPS. Adoption of EITF 04-8 would not have an impact on reported EPS for any of the periods presented.

NOTE 2. INVENTORIES

Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market and consist of the following (in thousands):

NOTE 3. REVOLVING CREDIT FACILITIES, LONG TERM DEBT, AND CAPITAL LEASES

Long-term debt and capital lease obligations consist of the following (in thousands):

Senior Credit Facility

In January 2004, the Company was required to use a portion of the proceeds ($4.5 million) from its private placement of common stock (see Note 15) to pay down a portion of the outstanding principal under the Dynamic Details Senior Credit Facility. On March 30, 2004, the Company repaid in full the outstanding balance of the Dynamic Details Senior Credit Facility and the related accrued

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DDi CORP.

Notes to the Condensed Consolidated Financial Statements

September 30, 2004

interest and fees using proceeds from the private placement of its Series B-1 and Series B-2 preferred stock (see Note 6) and cash on hand of $14.9 million, including cash previously classified as restricted as of December 31, 2003. In connection with the full repayment and termination of the Dynamic Details Senior Credit Facility, the warrants previously issued to the lenders under the Dynamic Details Senior Credit Facility were terminated resulting in interest expense of $0.9 million during the quarter ended March 31, 2004.

Revolving Credit Facility

On March 30, 2004, immediately after the Dynamic Details’ Senior Credit Facility was paid off, Dynamic Details and the Company’s other North American subsidiaries entered into an asset based revolving credit facility with a commitment up to $40 million through March 30, 2007, depending upon the value of the asset base. During the second quarter of 2004, the asset base on the revolving credit facility was expanded to include the Company’s Canadian operations. As of September 30, 2004, the Company was able to borrow up to $18.1 million against the revolving credit facility of which no amounts were drawn as of that date. The facility bears interest at LIBOR plus 4% on LIBOR loans and prime plus 3% for index rate loans. Interest will be determined by Dynamic Details’ adjusted EBITDA numbers, and will range from LIBOR plus 3 to 4% on LIBOR loans or prime plus 2 to 3% for index rate loans. The effective interest rate at September 30, 2004 was 7.75%. The revolving credit facility has covenants that place a limit on the level of capital expenditures and a minimum fixed charge ratio. The Company was in compliance with these covenants as of September 30, 2004. The Company incurred debt issuance costs of $2.3 million in connection with obtaining this revolving credit facility and will amortize such costs into interest expense using the straight-line method (which approximates the effective interest method) over the facility period. As of September 30, 2004, a total of $0.4 million of debt issuance costs has been amortized.

Capital Senior Accreting Notes

On December 12, 2003, DDi Capital issued $17.7 million in senior accreting notes pursuant to its plan of reorganization. Pursuant to the terms of its indenture, interest is payable on the senior accreting notes by issuance of additional senior accreting notes at an annual rate of 16% or, at DDi Capital’s election, in cash at an annual rate of 14% to be paid on a quarterly basis. Because of the decrease in DDi Capital’s leverage ratio, on June 1, 2004, DDi Capital was required to elect to pay interest due on all subsequent interest payments in cash starting June 15, 2004. Interest is calculated on the accreted principal balance as of March 14, 2004, the most recent scheduled interest payment date per the note indenture, of $18.4 million. As of September 15, 2004, DDi Capital paid $1.3 million in interest in cash to the holders of the senior accreting notes. The notes mature on January 1, 2009 and are redeemable by DDi Capital upon a change of control or upon sale of stock or property or other assets other than in the ordinary course of business; or, at the option of DDi Capital, in whole at any time, in each case, at a redemption price that is greater than the accreted value of the notes, plus accrued and unpaid interest, if any, to the redemption date. The notes have covenants customary for securities of this type. The covenants restrict the Company from incurring additional indebtedness and from making certain payments, including dividend payments to its stockholders. As of September 30, 2004, the Company was in compliance with these covenants. Each holder of the senior accreting notes also received a warrant to purchase pro rata shares of 762,876 shares of the Company’s common stock. In connection with the completion of a private placement of common stock in January 2004 (see Note 15), the amount of warrants issued was adjusted, pursuant to the anti-dilution provisions of the warrants, to purchase an aggregate of 807,090 shares. The Company recorded the warrants at an aggregate fair value of $0.2 million at November 30, 2003 and is using the effective interest rate method to accrete the debt value to face value at maturity through interest expense. For the three and nine months ended September 30, 2004, total warrant accretion was $8,000 and $20,000, respectively. These warrants are held in an escrow account until December 12, 2005 and are exercisable at an initial exercise price of $0.001 per share from December 13, 2005 through July 31, 2008. The warrants will be terminated if, on or before December 12, 2005, DDi Capital pays all of its indebtedness to the holders of the senior accreting notes.

DDi Europe Facilities Agreement

DDi Europe has a separate debt facility made up of £14.3 million ($25.7 million) in term loans and a working capital facility having a maximum borrowing limit of £10.0 million ($18.0 million) for its European operations as of September 30, 2004. Any amounts drawn under the working capital facility are payable upon demand by the lender. The term loan has a maturity date of December 30, 2007. Based upon current and expected market conditions for the DDi Europe operations, the European lender had stated its desire that DDi Europe not draw down more than £7.4 million ($13.3 million) of the working capital facility. In January 2004, the Company completed a private placement of its common stock (see Note 15), of which $4.0 million (approximately £2.4 million) was used to reduce the drawn balance of this working capital facility. As of September 30, 2004, an aggregate of £7.3 million ($13.1 million) was outstanding under this working capital facility. To the extent that DDi Europe is unable to generate cash sufficient to fund its operations, DDi Europe must seek alternative funding sources or take steps to restructure its operations.

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DDi CORP.

Notes to the Condensed Consolidated Financial Statements

September 30, 2004

Note Payable

DDi Corp. issued a note payable of $0.5 million to its independent financial advisor in consideration of their fees related to the consummation of the plan of reorganization. The note was repaid in January 2004 in connection with proceeds received from a private placement of common stock (see Note 15).

NOTE 4. EARNINGS PER SHARE

Basic and diluted earnings per share –Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share,” requires DDi Corp. to report both basic net income (loss) per share, which is based on the weighted average number of common shares outstanding and diluted net income (loss) per share, which is based on the weighted average number of common shares outstanding and dilutive potential common shares outstanding.

For the three and nine months ended September 30, 2004, potentially dilutive shares from the exercise of stock options and warrants and the issuance of Series B-1 and B-2 Convertible Preferred Stock were not included in diluted earnings per share because to do so would be anti-dilutive. For the three and nine months ended September 30, 2003, potentially dilutive shares from the exercise of stock options, warrants and the conversion of the convertible subordinated debt were not included in diluted earnings per share because to do so would be anti-dilutive. The number of potentially dilutive shares of common stock for the three months ended September 30, 2004 and 2003 were 2,729,229 (Reorganized DDi Corp.) and 12,616,856 (Predecessor DDi Corp.), respectively, and for the nine months ended September 30, 2004 and 2003, were 2,526,284 (Reorganized DDi Corp.) and 12,823,662 (Predecessor DDi Corp.), respectively.

NOTE 5. SERIES A MANDATORILY REDEEMABLE PREFERRED STOCK

In connection with the plan of reorganization, the Company’s certificate of incorporation and bylaws were amended and restated. The Company has authorized 5,000,000 shares of Preferred Stock at $0.001 par value per share. On December 12, 2003, the Company filed a Certificate of Designation designating 1,000,000 shares of Preferred Stock as Series A Preferred Stock (the “Series A Preferred”) and issued such shares to the Company’s former Convertible Subordinated Noteholders. The Series A Preferred has an annual dividend of 15% and an aggregate liquidation preference of $15 million with a mandatory cash redemption date of January 31, 2009. The Series A Preferred will only be paid to the extent there is value, as defined in the Certificate of Determination, in DDi Europe beyond what is owed on the DDi Europe Facility Agreement. As of November 30, 2003, the Company recorded a liability in accordance with SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” related to the Series A Preferred at its estimated fair value of $2 million. This estimated fair value was based on the valuation of an independent third party. The Company is accreting the Series A Preferred to the amount expected to be paid at maturity using the effective interest method. Total accretion for the three and nine months ended September 30, 2004 was $0.3 million and $0.7 million, respectively; with such amount being reflected as interest expense. Total accrued dividends (also recorded as interest expense) were $0.6 million and $1.7 million for the three and nine months ended September 30, 2004; respectively, and are included in “Notes payable and other” in the accompanying balance sheet. The Series A Preferred must be redeemed by the Company on the later of January 31, 2009 or the date on which all obligations under the DDi Europe Facilities Agreement have been paid in full. The Series A Preferred is subject to redemption at the option of the holders upon certain changes in control. The holders of the Series A Preferred will vote as a class and have the right to direct Reorganized DDi to elect four directors to the board of directors of DDi Europe. The holders of the Series A Preferred are also entitled to 1/100 of one vote for each share of Series A Preferred held.

NOTE 6. SERIES B MANDATORILY REDEEMABLE PREFERRED STOCK

On March 30, 2004, the Company completed a private placement of 147,679 shares of Series B-1 Preferred Stock and 1,139,238 shares of Series B-2 Convertible Preferred Stock (collectively, the “Series B Preferred”) to certain institutional investors at a price of $47.40 per share for an aggregate sales price of $61.0 million before placement fees and offering expenses. Each share of the Series B Preferred is initially convertible into four shares of common stock at any time at a conversion price of $11.85 per share, subject to certain anti-dilution adjustments. In general, the Series B Preferred vote together with the common shares based on the number of shares into which the Series B Preferred could convert on the day that the Series B Preferred was issued. In addition, the Series B Preferred is entitled to elect a member of the Company’s Board of Directors in the event the Company fails to redeem the Series B Preferred when required. The Series B Preferred bears dividends at the rate of 6% per annum, payable quarterly commencing March 31, 2005 and is subject to mandatory redemption in five years. In addition, the holders of the Series B Preferred have the option to

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DDi CORP.

Notes to the Condensed Consolidated Financial Statements

September 30, 2004

require the Company to redeem the shares in three equal installments in 18 months, 24 months and 30 months from issuance or earlier upon a change of control, certain events of default or other specified occurrences. The Company also has the right to redeem the Series B Preferred if Reorganized DDi Corp.’s common stock trades above $20.75 for 30 consecutive trading days. The redemption price equals cost plus accrued dividends, except in the case of certain defaults where there are premiums to the redemption cost. On May 26, 2004, the Company’s shareholders approved a proposal to allow the Company to have the option to make dividend and redemption payments using Reorganized DDi Corp.’s common stock. The Company recorded the redemption value of the Series B Preferred, $61.0 million net of issuance costs of $3.3 million, in the mezzanine section of the balance sheet as of March 31, 2004 in accordance with SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”. The Company will amortize the $3.3 million of related debt issuance costs using the effective interest method based on the Series B Preferred holders’ redemption option to require the Company to redeem the shares in three equal installments in 18 months, 24 months and 30 months from issuance. As of September 30, 2004, a total of $0.9 million of debt issuance costs has been amortized.

On March 30, 2004, the Company repaid in full the outstanding balance of the Dynamic Details Senior Credit Facility and related accrued interest and fees using proceeds of $54.8 million from the private placement of the Series B Preferred (see Note 3).

NOTE 7. STOCK OPTIONS

In connection with the Company’s emergence from Chapter 11 bankruptcy, on December 19, 2003, Reorganized DDi Corp. adopted the DDi Corp. 2003 Directors Equity Incentive plan (the “2003 Directors Plan”) for non-employee directors of the Company. DDi has reserved an aggregate of 600,000 shares of common stock of Reorganized DDi Corp. for issuance under the 2003 Directors Plan. The directors of the Company approved the grant of options to purchase 500,000 shares of common stock of the Company to the Company’s five non-employee directors (each receiving a grant of 100,000 options) at $5 per share on December 19, 2003 subject to the approval of the Directors’ Plan by the shareholders of the Company. On May 26, 2004, the shareholders approved the Directors Plan and, accordingly, the grant of these shares. The vesting on these shares is 40% immediately upon approval of grant by shareholders and 20% each year thereafter on December 19th of each year from 2004 through 2006. The Company is recording compensation expense related to these options.

The Company uses the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” to account for employee stock options and other stock-based compensation. Under this method, compensation expense is recognized when the exercise price of the Company’s employee stock options is less than the market price of the underlying stock on the date of the grant. During the three and nine months ended September 30, 2004, the Company recorded compensation expense related to stock options granted of $4.0 million and $16.8 million, respectively.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment to SFAS No. 123.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The Company has adopted the disclosure only provisions of SFAS No. 123 and, accordingly, the implementation of SFAS No. 148 has not had an effect on the Company’s consolidated financial position or results of operations.

The Company determined its pro forma results below using the alternate fair value method as prescribed by SFAS No. 123. Under the fair value based method of accounting for stock-based employee compensation, the fair value of each option grant is estimated at the date of grant using the Black-Scholes option pricing model and recognized over the vesting period, generally four years. Pricing model assumptions included an expected term of four years, a risk-free interest rate, dividend yield, and volatility assumptions consistent with the expected term and particular grant date. Had compensation cost for all stock-based compensation plans been determined consistent with SFAS No. 123, DDi Corp.’s net loss and net loss per share would have been as follows (amounts in millions, except per share data):

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DDi CORP.

Notes to the Condensed Consolidated Financial Statements

September 30, 2004

NOTE 8. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company’s certificate of incorporation provides that it will indemnify its directors and officers to the fullest extent permitted by Delaware General Corporation Law. The Company has obtained liability insurance for its directors and officers with respect to liability arising out of their capacity or status as directors and officers against expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding. Currently, several of the Company’s current and former officers and directors are named defendants in a securities class action lawsuit. At this time, management believes that the Company will not incur significant costs associated with these matters.

NOTE 9. ACQUISITION OF KAMTRONICS LIMITED

On October 24, 2002, DDi Europe completed the acquisition of Kamtronics Limited (“Kamtronics”), a market leader in sourcing printed circuit boards for European customers, based in Calne, England, for approximately $4.2 million plus contingent consideration based on earnings in each of the two years following the date of acquisition. The total purchase price has been allocated to underlying assets acquired and liabilities assumed based upon their respective fair market value at the date of acquisition. In the first quarter of 2004, DDi Europe amended the original sales agreement and replaced it with a settlement amount plus related interest to be paid by June 30, 2006 in place of the contingent consideration. As of March 31, 2004, additional consideration of $1.4 million was accrued and capitalized as additional purchase price to goodwill.

NOTE 10. SEGMENT REPORTING

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services, geographic areas and major customers. Operating segments are defined as components of an enterprise that engage in business activities from which it may earn revenues and incur expenses whose separate financial information is available and is evaluated regularly by the Company’s chief operating decision makers, or decision making group, to perform resource allocations and performance assessments.

The Company’s chief operating decision maker is the Chief Executive Officer. Based on the evaluation of the Company’s financial information, management believes that the Company operates in one reportable segment which designs, develops, manufactures, assembles and tests complex printed circuit boards, back panels and related electronic products. The Company operates in two geographical areas, domestic (U.S.A.) and international. Revenues are attributed to the country to which the product is sold. Revenues by product and service are not reported as it is impracticable to do so.

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DDi CORP.

Notes to the Condensed Consolidated Financial Statements

September 30, 2004

The following table summarizes net sales by geographic area (in thousands):

The following table summarizes long-lived assets by geographic area (in thousands):

NOTE 11. GOODWILL AND INTANGIBLES

The Company operates in one reportable segment (see Note 10). The Company separately monitors the financial performance of its North American and European operations. Further, each of these operations generally serves a distinct customer base. Based upon these facts, the Company considers the North American and European operations its reporting units for the assignment of goodwill. The Company’s European operations consist of entities acquired in conjunction with the MCM Electronics purchase transaction in 2000, the Thomas Walter purchase transaction in 2001 and the Kamtronics purchase transaction in 2002.

As part of fresh start accounting, an allocation of the reorganization value resulted in goodwill of $105.4 million and identified intangible assets totaling $24.9 million. This balance of identified intangible assets consists of $23.0 million relating to the customer relationships in North America and the remaining $1.9 million relates to the backlog in North America. Amortization related to customer relationships in North America for the three months and nine months ended September 30, 2004, was $1.1 million and $3.5 million, respectively. Amortization related to backlog in North America for the nine months ended September 30, 2004, was $0.8 million and was reported as a component of cost of goods sold.

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DDi CORP.

Notes to the Condensed Consolidated Financial Statements

September 30, 2004

In March 2004, the Company amended the contingent consideration relating to the acquisition of Kamtronics (see Note 9) and replaced it with a settlement amount plus related interest to be paid by June 30, 2006. As of March 31, 2004, additional consideration of $1.4 million was accrued and capitalized as additional purchase price to goodwill.

A business valuation for DDi Europe was conducted by an independent third party using public Company comparables, transactional comparables and discounted cash flow analyses in October 2004. Due to business valuation that indicated the book value of goodwill was in excess of its fair value at September 30, 2004, the Company calculated and recorded a goodwill impairment charge of $7.3 million, which represents 100% impairment of DDi Europe goodwill.

The changes in the carrying amount of goodwill for the nine months ended September 30, 2004, are as follows:

NOTE 12. RESTRUCTURING AND OTHER RELATED CHARGES

In the first quarter of 2003, Predecessor DDi Corp. recorded charges totaling $0.5 million, which were classified as “Restructuring and other related charges.” Such charges primarily represent revision of estimates from previously recorded restructuring charges and consist of $0.2 million in accrued restructuring expenses and $0.3 million in severance and other exit costs. The accrued restructuring expenses of $0.2 million were related to other exit costs.

In the second quarter of 2003, Predecessor DDi Corp. recorded charges totaling $5.0 million relating to the sale of the Company’s Dallas-based electronics enclosure operations and management’s plan to down-size its Anaheim, California and Virginia facilities. Such charges consisted of $1.7 million relating to impairment of inventory which were reflected as a component of cost of goods sold, $1.0 million relating to impairment of net property, plant and equipment primarily related to the Dallas-based electronics enclosure operations the Company sold, $0.3 million in estimated facilities closure costs, $0.1 million in other exit costs, $0.6 million in severance charges and $1.3 million in accrued restructuring expenses.

“Restructuring and other related charges” recorded in the third quarter of 2003 totaled ($0.8) million for DDi Corp. Such charges consist of a non-cash credit of $0.8 million resulting principally from a reduction in estimated net lease exit costs recorded as part of its operational restructuring initiatives undertaken in 2002.

In the first quarter of 2004, the Company closed its operations in Tolworth, England. In connection therewith, DDi Corp. recorded charges totaling $4.4 million which were classified as “Restructuring and other related charges” and ‘Restructuring-related inventory impairment.” The charges represented an inventory impairment of $0.5 million recorded as cost of goods sold, $2.1 million relating to impairment of net property, plant and equipment primarily related to Tolworth’s operations, $0.4 million credit relating to the reduction of capital lease obligations, $0.6 million in severance and other exit costs, $0.2 million in estimated facilities closure costs, and $1.4 million in accrued expenses for the quarter. As of March 31, 2004, the accrued restructuring expenses of $1.4 million consist of $0.2 million related to severance and other exit costs as well as $1.2 million related to costs associated with readying facilities for disposition, primarily an estimate of the cost to exit a facility lease.

“Restructuring and other related charges” recorded in the second quarter of 2004 totaled $0.9 million. Such charges consist of $0.6 million relating to impairment of net property, plant and equipment primarily related to the closure of the Tolworth operations in Europe, $0.1 million in severance costs, $0.1 million in estimated facilities closure costs and $0.1 million in other exit costs.

“Restructuring and other related charges” recorded in the third quarter of 2004 totaled $0.3 million. Such charges consist of $0.3 million in severance costs, ($0.3) million in estimated facilities closure costs due to revision of prior estimates and $0.3 million adjustment of prior period estimated professional fees relating to restructuring costs.

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DDi CORP.

Notes to the Condensed Consolidated Financial Statements

September 30, 2004

Total accrued restructuring expenses at September 30, 2004 were $1.9 million. These accrued restructuring expenses represent $0.2 million in severance and related expenses, $1.6 million in estimated facilities closure costs, and $0.1 million in other exit costs. The Company expects to pay these accrued amounts through 2005.

NOTE 13. REORGANIZATION EXPENSES

During the fourth quarter of 2002, Predecessor DDi Corp. initiated plans to restructure debt and retain employees. These efforts resulted in reorganization charges of $3.3 million for the quarter ended March 31, 2003. Of these amounts, $2.0 million is related to professional fees and $1.3 million is related to personnel retention costs under the Dynamic Details Key Employee Retention Program (“KERP”).

In the second quarter of 2003, the Company recorded reorganization charges of $2.7 million. Of these amounts, $1.9 million was related to professional fees and $0.8 million is related to personnel retention costs under the KERP.

In the third quarter of 2003, the Company recorded reorganization charges of $2.3 million. Of these amounts, $1.6 million was related to professional fees and other costs associated with the reorganization. The charges also included $0.7 million relating to personnel retention costs under the Dynamic Details KERP and was included in accrued expenses at September 30, 2003.

Reorganization charges in the first quarter of 2004 were $0.9 million relating to professional fees and other costs associated with the reorganization of Reorganized DDi Corp.’s debt structure.

In the second quarter of 2004, the Company recorded reorganization charges of $0.2 million. These amounts were primarily related professional fees and costs associated with the KERP.

In the third quarter of 2004, the Company did not record any reorganization charges.

NOTE 14. COMPREHENSIVE LOSS

SFAS No. 130, “Reporting Comprehensive Income,” establishes requirements for reporting and disclosure of comprehensive income (loss) and its components. Comprehensive loss includes unrealized holding gains and losses and other items that have previously been excluded from net loss and reflected instead in stockholders’ equity. Comprehensive loss consists of net loss plus the effect of foreign currency translation adjustments, unrealized holding loss on marketable securities classified as available-for-sale and unrealized net gains on interest rate swaps and related unrealized net tax impact.

NOTE 15. PRIVATE PLACEMENT

On January 21, 2004, the Company completed a private placement of 1,000,000 shares of common stock to institutional investors for gross proceeds of $15,980,000, before placement fees and offering expenses of $1.5 million. The shares of common stock were priced at $15.98 per share, which represented a 6% discount against the trading price of DDi Corp.’s common stock as of January 9, 2004. The Company was required to use a portion of the proceeds, $4.5 million, to pay down the then outstanding Dynamic Details Senior Credit Facility. In addition, the Company used certain of the proceeds to pay in full the note payable to the Company’s independent financial adviser plus accrued interest, $0.5 million, and to pay down $4.0 million of the DDi Europe working capital facility. Each of these payments was made in January 2004. In connection with the completion of this private placement, the amount of warrants issued to the holders of the Senior Accreting Notes was adjusted, pursuant to the anti-dilution provisions of the warrants. (see Note 3).

NOTE 16. TEXAS LAND SALE

During March 2004, the Company sold land and building related to its Garland, Texas location for $2.0 million cash. Of that amount, $0.5 million is required to be deposited into an escrow account for 5 years for environmental remediation. The Company incurred closing costs of $0.1 million resulting in net proceeds of $1.4 million. The Company was required to use $0.9 million of the net proceeds to pay down the Dynamic Details Senior Credit Facility.

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DDi CORP.

Notes to the Condensed Consolidated Financial Statements

September 30, 2004

NOTE 17. SUBSEQUENT EVENTS

On October 8, 2004, the Company announced that it has taken further steps to lower the cost structure of manufacturing operations. The Company plans to transfer a portion of its customer orders from its Milpitas manufacturing facility to DDi facilities in Toronto and Virginia which have lower production costs. This action by the Company will result in a workforce reduction of up to 175 employees at the Company’s Milpitas manufacturing facility, partially offset by the expected addition of a small number employees across DDi’s other facilities.

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