10-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended March 31, 2006

OR

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             .

Commission File No. 000-31223

Pemstar Inc.

(Exact name of registrant as specified in its charter)

Minnesota	41-1771227
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3535 Technology Drive N.W. Rochester, Minnesota	55901
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (507) 288-6720

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of voting stock held by non-affiliates of the registrant, as of September 30, 2005, was approximately $49,273,865 (based on the last sale price of such stock as reported by the Nasdaq Stock Market National Market).

The number of shares outstanding of the registrant’s common stock, $.01 par value, as of May 31, 2006, was 45,345,905.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for the 2006 Annual Meeting of Shareholders to be held on August 3, 2006 are incorporated by reference into Part III.

PART I.

Forward Looking Statements

This Annual Report on Form 10-K (the “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or Pemstar’s future performance. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. Forward-looking statements are not descriptions of historical facts. The words or phrases “will likely result,” “look for,” “may result,” “will continue,” “is anticipated,” “expect,” “project” or similar expressions are intended to identify forward-looking statements, and are subject to numerous known and unknown risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including those identified under the caption “Cautionary Statements” in Part I, Item 1A of this Form 10-K. Pemstar undertakes no obligation to update or publicly announce revisions to any forward-looking statements to reflect future events or developments.

PEMSTAR^® is a registered trademark of Pemstar Inc. Other trademarks and trade names appearing in this Annual Report on Form 10-K are the property of their respective holders.

ITEM 1. BUSINESS

Overview

Pemstar Inc., incorporated in Minnesota in 1994, provides a comprehensive range of global engineering, product design, automation and test, manufacturing and fulfillment services to our customers in the industrial equipment, medical, computing and data storage, and communications industries. We provide these services on a global basis through eleven strategic locations in the Americas, Asia, and Europe. These integrated service offerings support our customers’ needs from initial product development and design through manufacturing to worldwide distribution and aftermarket support.

Service Offerings

We offer a comprehensive range of engineering, automation, test, manufacturing and fulfillment solutions that support our customers’ products from initial design through prototyping, design validation, testing, ramp to volume production, worldwide distribution and aftermarket support. We support all of our service offerings with a comprehensive supply chain management system, superior quality program management and sophisticated information technology systems. Our comprehensive service offerings enable us to provide a complete solution for our customers’ outsourcing requirements.

Engineering Solutions

New Product Design, Engineering, Prototype & Test. We offer a full spectrum of new product design, prototype, test and related engineering solutions. Our concurrent engineering, one-stop-shop approach shortens product development cycles and gives our customers a competitive advantage in time-to-market and time-to-profit. Our multi-disciplined engineering teams provide expertise in a number of core competencies critical to serving original equipment manufacturers in our target markets, including award-winning industrial design, mechanical and electrical hardware, firmware, software and systems integration and support. We create specifications, designs, quick-turn prototypes, and validate and ramp our customers’ products into high volume manufacturing. Our technical expertise includes electronic circuit design for analog, digital, radio frequency, microwave and mixed signal technology, Microsoft and Intel design capabilities. We have global engineering facilities in Almelo, the Netherlands; San Jose, California; Rochester, Minnesota; and Singapore.

Custom Test and Automation Equipment Design & Build Solutions. We provide our customers with a comprehensive range of custom functional test equipment, process automation and replication solutions. We have substantial expertise in tooling, testers, equipment control, systems planning, automation, floor control, systems integration, replication and programming. Our custom functional test equipment, process automation and replication solutions are available to original equipment manufacturers as part of our full service product design and manufacturing solutions package or on a stand-alone basis for products designed and manufactured elsewhere. We are also a merchant provider of customer test equipment and automation systems to original equipment manufacturers. Our ability to provide these solutions allows us to capitalize on original equipment manufacturers’ increasing needs for custom manufacturing solutions and provide an additional opportunity to introduce customers to our comprehensive engineering and manufacturing services.

1

Revenues from our engineering services, including process test and automation equipment and prototype development, were 8.2%, 13.3% and 12.4% of our total net sales in fiscal 2006, 2005 and 2004, respectively.

Manufacturing and Fullfillment Solutions

Printed Circuit Board Assembly & Test. We offer a wide range of printed circuit board assembly and test solutions, including printed circuit board assembly, assembly of subsystems, circuitry and functionality testing of printed assemblies, environmental and stress testing and component reliability testing.

Flex Circuit Assembly & Test. We provide original equipment manufacturers with a wide range of flexible circuit assembly and test solutions. We utilize specialized tooling strategies and advanced automation procedures to minimize circuit handling and ensure that consistent processing parameters are maintained throughout the assembly process. All of our manufacturing activities are monitored to comply with strict environmental controls and to maintain our product quality standards.

Systems Assembly & Test. We offer a wide range of systems assembly and test solutions that enhance product quality and optimize the supply chain. Our manufacturing capabilities include the design, development and building of test strategies and equipment for our customers’ products which utilize manual, mechanized or fully automated production lines to improve product quality, reduce costs and improve delivery time to customers. We also have expertise in advanced precision and electromechanical technologies and optical manufacturing services. In order to meet our customers’ demand for systems assembly and test solutions, we offer subassembly build, final assembly, functionality testing, configuration and software installation and final packaging services.

Precision Electromechanical Assembly & Test. We offer a full spectrum of precision electromechanical assembly, coating and test solutions that can be utilized in a variety of advanced applications in computer, communications, industrial and medical industry segments. We design, develop and build product specific manufacturing processes utilizing manual, mechanized or fully automated lines to meet our customers’ product volume and quality requirements. All of our assembly and test processes are developed according to customer specifications and replicated within our facilities.

Revenues from manufacturing services, including process test and automation equipment and prototype production, were 91.8%, 86.7% and 87.6% of our total net sales in fiscal 2006, 2005 and 2004, respectively.

Product Configuration and Distribution. We provide our customers with product configuration and global distribution services that complement our engineering and manufacturing solutions and enable our customers to be responsive to changing market demands and reduce time to market. We have developed a web-based collaboration interface that enables real-time communication with our customers. We utilize sophisticated software that allows us to customize product runs to configure the products made to the specifications in our customers’ orders. Our global distribution capabilities allow us to distribute products to customers, distributors and end-users around the world. We provide inventory programs that allow our customers to manage the shipment and delivery of products. As part of these inventory programs, a customer may request that its inventory be stored at a site closer to the customer prior to distribution, which streamlines the distribution process and decreases delivery times.

Aftermarket Services. All of our products carry warranties subject to contractual agreements with our customers. In addition, we provide our customers with a range of aftermarket services, including repair, replacement, refurbishment, remanufacturing, exchange, systems upgrade and spare part manufacturing throughout a products life cycle. These services are tracked and supported by specific information technology systems that can be tailored to meet our customers’ individual requirements.

Value-Added Support Systems

We support our engineering, manufacturing, distribution and aftermarket support services with an efficient supply chain management system and a superior quality management program. All of our value-added support services are implemented and managed through web-based information technology systems, which enable us to collaborate with our customers throughout all stages of the engineering, manufacturing and order fulfillment processes.

2

Supply Chain Management

Our supply chain management system reduces our customers’ total costs by assisting them in the selection of components during the product design stage to enhance advantageous sourcing and pricing from preferred suppliers and distributors. We employ a supplier certification process to ensure that suppliers of key components have predictable and stable manufacturing processes capable of supplying components that meet or exceed our quality requirements. We have strong relationships with a broad range of materials and component suppliers and distributors based on our commitment to use them on a preferred basis. In addition, our product design and volume procurement capabilities enhance our ability to secure supplies of materials and components at advantageous pricing.

We utilize a full complement of electronic data interchange transactions, or EDI, with our suppliers to coordinate forecasts, orders, reschedules, inventory and component lead times. Our enterprise resource planning systems, or ERP systems, provide product and production information to our supply chain management, engineering change management and floor control systems. These ERP systems also provide us with real-time financial and materials management data. Our information systems also control serialization, production and quality data for all of our facilities around the world utilizing state-of-the-art statistical process control techniques for continuous process improvements. We also have developed a web-based collaboration interface that utilizes products from AGILE Software Corporation to collaborate with our supply chain partners in real-time on product content and engineering change management. We utilize web-based interfaces and real-time supply chain management software products from Kinaxis Inc. to enhance our ability to rapidly respond to changes in our customers’ requirements by effectively managing changes in our supply chain, scaling operations to meet customer needs, shifting capacity in response to product demand fluctuations, reducing materials costs and effectively distributing products to our customers or their end-customers.

Quality Management

We believe that the application of quality management and continuous quality improvement activities are key success factors to providing high quality products and services to our customers. Our quality management system is based upon ISO 9001:2000 in all our sites. We comply with FDA requirements for 21 CFR Part 820 and maintain ISO 13485 in our medical device manufacturing locations. In facilities where applicable, we have also certified quality management systems supporting AS9100 for our aerospace and defense customers. The majority of our factories have on-line, web-enabled process control manufacturing execution systems utilizing DATASWEEP software for work in progress and production line quality control. At pre-determined points of time, currently on an hourly basis, production line performance can be monitored from any site in the world, to headquarters. We also provide a service that allows customers to view their own product performance as it is manufactured. We are committed to ongoing improvement and use the Six Sigma and Lean process improvement methodologies to facilitate and track those ongoing improvements.

Manufacturing Technologies

We offer original equipment manufacturers expertise in a wide variety of traditional and advanced manufacturing technologies. Our technical expertise supports standard printed circuit board assembly as well as increasingly complex products that require advanced engineering skills and equipment. Pemstar is helping its customers deal with Reduction of Hazardous Substances (RoHS) requirements around the world. Manufacturing sites in the Americas, Asia and European regions are certified in both water soluble and no-clean processes and are currently producing products that are RoHS compliant. We intend to continue to maintain our technical expertise in traditional methods and processes and to continue developing and maintaining our expertise in advanced and emerging technologies and processes.

We provide original equipment manufacturers with expertise in manufacturing technologies used in the production of optical and wireless components and systems, including:

• Adhesives. This technology involves the precision application of bonding agents to components.

• Conformal Coating. This technology involves applying a film coating to printed circuit board assemblies and other assemblies to protect them from environmental damage. In addition, Pemstar can also coat medical devices with biocompatible materials such as parylene, which can also serve as a foundation for subsequent coating layers that include pharmaceuticals or other compounds such as heparin.

• Laser Welding. Utilizing lasers, we can conduct high-precision welding of materials.

• Hybrid Optical/Electrical Printed Circuit Board Assembly and Test. We have technology that enables us to assemble circuit board assemblies containing both light or laser components and electrical components.

• Sub-micron Alignment of Optical Sub-Assemblies. We have technology that enables us to align components within increments of less than one millionth of a meter.

3

Our manufacturing technology expertise also includes the following areas applicable to both printed circuit board assembly and application specific flexible circuits:

• Surface Mount Technology. Utilizing this technology, component leads are attached to a circuit board by soldering to a circuit board without any holes or leads protruding through the board. This technology is used for higher density products because both sides of the board can be used and can be automated for high volume production.

• Fine Pitch. Fine pitch technology also involves the attachment of component leads onto a circuit board by soldering. Pitch refers to the spacing of component leads and patterns. With fine pitch and ultra fine pitch technology, the distance between the individual component leads is much smaller, making this technology useful for products requiring smaller packaging and higher board densities.

• Ball Grid Array. A ball grid array is a method of mounting an integrated circuit or other component onto a printed circuit board. Rather than using traditional leads, the component is attached directly to the bottom of the package with small balls of solder. When assembled onto a circuit board, these solder balls form an inter-connect with conducive pads on the surface of the board. This method allows for greater component density and is used in printed circuit boards with higher layer counts.

• Flip Chip. A flip chip is a structure that houses circuits, which are interconnected without leads. This technology involves mounting an electronic device face down directly to a circuit board utilizing solder balls attached to the device. The electrical interconnections are then surrounded with an adhesive-type underfill for protection. Flip chips are utilized to minimize printed circuit board surface area when compact packaging and higher product performance is required.

• Chip On Board/Wirebonding. This technology involves the attachment of an electronic device face-up directly to a circuit board and then making individual electronic connections by bonding conducive wires to the board and the device. The completed assembly is then encapsulated in a polymer. This technology eliminates the need for packaging the circuit, and allows for additional miniaturization of products.

• In-Circuit Test. This technology involves the verification of specific portions of a circuit board for basic electronic properties associated with manufacturing defects.

• Board Level Functional Test. This technology simulates the ultimate end-use functionality of a completed circuit board assembly.

• Stress Testing. This technology verifies the functionality of a completed printed circuit board assembly while intentionally introducing adverse environmental conditions such as temperature extremes, humidity and vibration to screen out potential problems or failures otherwise not detectable until the product is in use.

Customers

Our customers include industry leading original equipment manufacturers such as 3M, Boston Scientific, Fluke, Hitachi Global Storage Technologies, Honeywell and IBM. We also have many relationships with new and existing customers across the four key industries we serve including Given Imaging and General Dynamics. The following table shows the percentage of our net sales in each of the markets we serve for the fiscal years ended March 31, 2006, 2005 and 2004.

4

	As presented						Proforma to Exclude Incremental Turnkey Sales (1)
	Fiscal Year Ended March 31,						Fiscal Year Ended March 31,
Markets	2006		2005		2004		2006(1)		2005		2004
Communications	44	%	22	%	28	%	18	%	22	%	28	%
Computing and Data Storage	23		31		34		34		31		34
Industrial Equipment	32		44		34		46		44		34
Medical	1		3		4		2		3		4
Total	100	%	100	%	100	%	100	%	100	%	100	%

(1) – Proforma presentation excludes $272.9 million of incremental sales resulting from one Communications customer’s decision during fiscal 2006 to have us acquire the material previously acquired by the customer and consigned to us for use in their product.

The following table indicates, for fiscal 2006, certain large customers in terms of net sales, in alphabetical order, and the primary products for which we provided our services.

Customers	End Products
Applied Materials	Industrial semi-conductor capital equipment
Fluke Corporation	Industrial instrumentation
Hitachi Global Storage	Industrial and storage electronics
Honeywell	Industrial electronics
IBM	Computing, network and storage equipment
Motorola	Wireless communications devices

Motorola and IBM represent the Company’s only customers whose sales each exceeded 10% of consolidated net sales in fiscal 2006.

Sales and Marketing

Pemstar differentiates itself through its superior offering of engineering skills and manufacturing services globally. We market our product development engineering, automation and test development, manufacturing and fulfillment services solutions through a group of full-time senior sales professionals located in the Americas, Europe and Asia. Our North American sales force is assisted by a network of manufacturers’ representatives. Sales in each world-wide region are managed by an experienced sales team with the assistance of technical support members who assist in coordinating the engineering interface across the regions. Our direct sales personnel have knowledge of local and international markets, which we believe is critical to identifying new customers and developing new business opportunities. Our operations team has been integrated with sales and finance personnel into strategic teams that focus on our large customers. This focus to develop stronger relationships and partnerships with our customers is integral to our future focus for organic growth. In addition, our sales team has been reorganized to focus individual efforts within one of three lines of business in the electronics and instruments group, equipment and replications group, or European operations. We believe this additional focus between operations and sales personnel will make us more efficient in meeting our overall customer satisfaction and growth goals.

Our sales and marketing team is focused on original equipment manufacturers in the industrial, medical, defense/aerospace and data/communications sectors which require comprehensive outsourcing solutions. Our target customers and partners will leverage our full capabilities in engineering and manufacturing. We are focused on developing close working relationships with our customers. To facilitate these relationships, a customer support team is designated in order to service all of the customer’s needs throughout the life cycle of a product. Each team consists of a dedicated sales account manager, operational program manager, project buyer, production control planner, manufacturing engineer and quality engineer. The account manager serves as a single point of contact for all business related activities, while the on site program manager is the day to day tactical interface with the customer’s counterpart personnel. In our large account teams, we designate an executive sponsor to be active in strategic planning and selling with our customers and to support the direct needs of the team’s strategic plan with senior site operations. This focused team approach seeks to increase customer satisfaction and differentiates Pemstar from its competitors.

5

Intellectual Property

We have proprietary processes and program management methodologies that enable us to shorten time to market and to deliver high quality products in a cost-effective manner. Our intellectual property portfolio of patents, patent applications, trade secrets, know-how, and other proprietary information, enables us to develop products and manufacture custom automation and test equipment solutions for our customers. In the U.S. and Singapore, we currently have patents and patents pending for technology and methodologies relating to product development, process automation, product quality and reliability, manufacturing processes, failure analysis, process control techniques and test equipment. These inventions are used as building blocks that can be applied in a variety of applications.

Our multi-disciplined engineering teams continually seek to develop new testing and manufacturing equipment and processes to meet our customers’ changing needs and provide custom product development solutions at an affordable cost. Our engineers often incorporate custom built equipment into our own proprietary manufacturing systems to maximize the equipment’s functionality and optimize manufacturability. Because these systems are based on our proprietary technology, they can be quickly replicated in our facilities and provided to our customers in a cost-efficient manner.

To protect our proprietary rights, we rely largely upon a combination of patents, trade secret laws, non-disclosure agreements with our customers and our internal confidentiality procedures and employee confidentiality agreements. Although we take steps to protect our proprietary information and trade secrets, misappropriation may still occur. We believe that our proprietary design and manufacturing processes do not infringe on the proprietary rights of others.

We license some technology from third parties that we use in providing engineering and manufacturing services to our customers. We believe that these licenses are generally available on commercial terms from a number of licensors. Generally, the agreements governing this technology grant us non-exclusive, worldwide licenses with respect to the subject technology and could terminate upon a material breach by us.

Research and Development

The market for our services is characterized by rapidly changing technology and continuing process development. Original equipment manufacturers are demanding smaller, faster and higher performance products. These demands require increasingly complex engineering and manufacturing capabilities. We are committed to developing new design and manufacturing technologies and enhancing our existing technologies. Since our formation in 1994, we have made investments in technology and equipment to meet our customers’ needs and maintain our competitive advantage. Our expenditures for research and development in fiscal 2006, 2005 and 2004 were $0.5 million, $0.6 million, and $0.5 million, respectively.

Our close relationships with customers in the early stages of product design allows us to develop new products that utilize innovative technology in a variety of engineering disciplines. These close relationships assist us in identifying emerging products and related technologies in target markets, which allows us to develop and expand our existing technology, or to develop or obtain new technology that will enable us to remain competitive in the electronics manufacturing services industry. As a result of our commitment to maintaining advanced technological capabilities, we have developed expertise in communications, particularly in the areas of optical and wireless technologies, which we believe gives us a competitive advantage over many other electronics manufacturing services providers.

Employees

As of March 31, 2006, we had 2,356 full-time employees. In addition to our full-time employees, we regularly hire part-time and temporary (contract) employees so our total employee count was approximately 4,100 on March 31, 2006. Given the variable nature of our project flow and the quick response time required by our customers, it is critical that we be able to quickly adjust our production capacities to maximize efficiency and manage costs. To achieve this, our strategy has been to employ a skilled temporary labor force, as required. Except for our 279 employees located in Almelo, the Netherlands, none of our employees are unionized. We believe our employee relations are good, and we have not experienced any work stoppages at any of our facilities.

Worldwide Operations

A key element in our business strategy is to leverage our balanced global presence to provide engineering, manufacturing and fulfillment services and solutions in locations that meet our customers’ regional requirements.

6

Consistent with this strategy, we have established three geographical operation regions: the Americas, Europe and Asia. Each region has design and manufacturing facilities. Our facilities offer a full range of services, where suitable to the regional market, or a more limited range, when that is appropriate. Facilities’ service offerings can be scaled up or down as customers’ needs change. We will continue to explore strategic opportunities throughout the world, especially in low-cost regions, that strengthen our competitive position and enhance shareholder value.

In the Americas region, facilities in Rochester, Minnesota and Dunseith, North Dakota provide a full range of services and solutions, including engineering design capabilities, a new product introduction specialty center, volume production capacity and fulfillment and aftermarket services. The region is run as one virtual organization that optimizes support cost and lowers overall cost to our customers. In addition our volume production capacity is often delivered through our strategic relationships with Native American owned distribution businesses. Our San Jose, California engineering center continues to add significantly to our engineering and design capabilities and represent a strong presence for us in the governmental market. This complements the communications and optical solutions available in our other locations. Our Austin, Texas expansion in fiscal 2004 greatly enhanced our capabilities in capital equipment manufacturing and expanded our presence in the industrial segment

In the Europe region, our Almelo, the Netherlands, facility serves as a full range capability site and additionally provides the capability to rapidly distribute products for our European and North American customers. Our facility in Ireland also supports European customers with an additional emphasis on medical device manufacturing. During fiscal 2005, the Company has started an expansion joint venture in Brasov, Romania that offers customers a low cost production solution.

Our facility in Singapore has enhanced our service capabilities in the data storage industry by adding specialized disk drive design and industrial equipment assembly capabilities. This facility also provides critical sales support for customers in the United States, Southeast Asia, the Philippines, Japan and Korea. Our Bangkok, Thailand operation is located outside of Bangkok in a tax-free industrial zone to expand our manufacturing capabilities and provide cost effective solutions for our customers. Our Thailand operations are strategically situated in the rapidly expanding Asian communications, computing and data storage markets, giving us access to new customers in those industries. In the Asia region, our facility in Tianjin, China is presently the largest Pemstar site. The Tianjin operation enables us to reduce our customers’ manufacturing costs primarily for customers in the communications industries. We are presently evaluating strategic alternatives and partnerships for this location. In April 2006, we leased facilities in Shenzhen, China, which will increase our manufacturing capabilities with respect to specialized disk drive design and industrial equipment, further enhancing our service capabilities in the data storage industry.

For disclosures regarding the financial information about various geographies, see Note 12 to the consolidated financial statements included herewith.

Competition

The electronics manufacturing services industry is highly competitive, and we compete against numerous domestic and foreign engineering and manufacturing service companies. We believe that the principal competitive factors in our industry are:

• Service and solutions offerings;

• Technological capabilities;

• Scale of operations and financial strength;

• Geographic location and coverage;

• Pricing;

• Product quality;

• Meeting product delivery schedules; and

• Flexible and timely response to design and schedule changes.

7

We believe that large, publicly-traded original equipment manufacturers prefer to enter into outsourcing relationships with other public electronics manufacturing services providers that present them with the opportunity to build a long-term relationship because of their greater access to capital and resulting financial stability. Many of our competitors are substantially larger and have greater financial, operating, manufacturing and marketing resources than we do. Some of our competitors have broader geographic breadth and range of services than we do. In addition, some of our competitors may have stronger relationships with our existing customers than we do. We believe that we are well positioned to compete against these larger competitors due to our worldwide engineering, product quality, flexibility and timeliness in responding to design and schedule changes, reliability in meeting product delivery schedules, pricing, the provision of value-added services and geographic location.

We also face competition, with decreasing frequency, from the manufacturing operations of our current and potential customers, who continually evaluate the relative benefits of internal manufacturing compared to outsourcing. As more original equipment manufacturers dispose of their manufacturing assets and increase their use of outsourcing, we face increasing competitive pressure to grow our business in order to maintain our competitive position.

Governmental Regulation

Our operations are subject to federal, state and local regulatory requirements on environmental, waste management and health and safety measures relating to the use, release, storage, treatment, transportation, discharge, disposal and clean-up of hazardous substances and wastes, as well as practices and procedures applicable to the construction and operation of our plants. In addition, we are required to register with the United States Food and Drug Administration as a medical device manufacturer. The FDA and various state agencies inspect our facilities from time to time to determine whether we are in compliance with the FDA’s Quality Systems Regulation relating to medical device manufacturing companies, including regulations concerning manufacturing, testing, quality control and product labeling practices. The current costs of compliance are not material to us, and we are not presently aware of any facts or circumstances that would cause us to incur significant costs or liabilities in the future related to environmental, health and safety law compliance.

Available Information

Pemstar’s Internet website is http://www.pemstar.com. Pemstar makes available free of charge, on or through its website, its annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with, or furnishing such reports to, the Securities and Exchange Commission. Information contained on Pemstar’s website is not part of this report.

ITEM 1A. RISK FACTORS

Risks Relating to Our Business and Industry

Reductions in demand and other factors have caused net losses.

The continuing reduction in capital spending by businesses for new technologies, the remaining effects of the recent recession and the market disruptions caused by the September 2001 terrorist attacks in the United States and threats of hostilities in the Middle East and Asia had reduced demand in many of the technology markets we serve. As a result of these market conditions, we experienced a significant reduction in demand for our services during fiscal 2002, continuing through fiscal 2003 with some effects for us lingering through fiscal 2005. A new recession, additional outbreaks of hostilities or any other events leading to excess capacity or a continued or increased downturn in the markets we serve would likely negatively affect our net sales. In addition, the communications, computing and data storage, industrial and medical equipment markets of the electronics manufacturing services industry are characterized by intense competition, relatively short product life-cycles and significant fluctuations in product demand. These markets are also subject to rapid technological change and product obsolescence. If any of these factors or other factors reduce demand for specific products or components that we design or manufacture for our customers, our net sales would likely be negatively affected. Due to these market conditions and factors, we may experience net losses in future periods.

8

The loss of any of our major customers would harm us.

We depend on a relatively small number of customers for a significant portion of our net sales. Our two largest customers in fiscal 2006 were Motorola and IBM, which represented approximately 60.5% of our total net sales, including the incremental turnkey revenue in fiscal 2006 from Motorola. In addition, our ten largest customers in fiscal 2006 accounted for approximately 84.3% of our net sales, including the incremental turnkey revenue in fiscal 2006 from Motorola. With our focus on growing our business with our key accounts, we expect to continue to depend upon a relatively small number of customers for a significant percentage of our net sales. Because our major customers represent such a large part of our business, the loss of any of our major customers could negatively impact our business.

Our major customers may not continue to purchase products and services from us at current levels or at all. In the past, we have lost customers due to the acquisition of our customers, product discontinuation and customers’ shifting production of products to internal facilities. We may lose customers in the future for similar reasons. We may not be able to expand our customer base to make up any sales shortfalls if we lose a major customer. Our attempts to diversify our customer base and reduce our reliance on particular customers may not be successful.

Our business has been adversely affected by reductions or delays in customer orders.

We do not typically obtain firm long-term purchase orders or commitments from our customers. We work closely with our customers to develop forecasts for future orders, but these forecasts are not binding. Customers may cancel their orders, change production quantities from forecast volumes or delay production for a number of reasons beyond our control. Any material delay, cancellation or reduction of orders from our largest customers could cause our net sales to decline significantly and could result in us holding excess inventories of components and materials. In fiscal 2006, these and similar factors caused us to recognize charges for inventory reserves and adjustments of $4.9 million. We may be required to recognize similar charges in future periods.

Many of our costs and operating expenses are relatively fixed. As a result, a reduction in customer demand can decrease our gross profit and adversely affect our business, financial condition and results of operations.

If we are unable to satisfy the financial covenants under our worldwide credit facilities, our availability may be limited or we may have to obtain alternative sources of financing.

While we did not violate any banking covenants in fiscal 2006, we have historically experienced violations of covenants under our revolving credit facilities and have been required to seek waivers for such violations. Compliance with these covenants in our credit facilities is dependent upon us achieving certain revenue and expense targets in our fiscal 2007 operating plan. If we do not comply with these covenants or if we default on our payment obligations under other debt obligations, our availability under our credit facilities could be reduced or our lenders could declare a default under the credit facilities. In the event of a default or a substantial reduction of availability, we would be required to obtain alternative financing, which could be more expensive than our current arrangement, be dilutive to existing shareholders and divert management’s time and attention. Moreover, we cannot assure that we would be able to obtain alternative financing on favorable terms and on a timely basis, if at all. Our failure to meet any of our covenants under our credit facilities could significantly harm our liquidity and financial position.

Our continued viability depends on our ability to generate additional cash from operations or obtain additional sources of funds for working capital. Our ability to maintain sufficient liquidity depends, in part, on our achieving anticipated revenue targets and managing our expenditure levels versus the following intended expense reductions from our restructuring activities. We may not achieve these targets or manage our expenses to the intended levels. If our operating goals are not met, we will be required to secure additional financing from lenders or sell additional securities. We may not be able to obtain additional capital when we want or need it, and capital may not be available on satisfactory terms. If we issue additional equity securities or convertible debt to raise capital, it may be dilutive to your ownership interest. In addition, any additional capital may have terms and conditions that adversely affect our business, such as financial or operating covenants.

We have been unable to collect all our accounts receivable.

Falling demand for the products of our technology customers and liquidity difficulties for these companies have forced us to reach accommodations with a portion of our customers and have at times limited our ability to collect fully our accounts receivable from these customers in fiscal 2006 and 2005. In addition, several significant customers in recent years have filed for bankruptcy protection, which limits our recovery of accounts receivable from these customers. In fiscal 2006, these and similar factors caused us to recognize charges for accounts receivable adjustments of $2.8 million. We may be required to recognize similar charges in future periods.

9

Our acquisition strategy may not succeed.

While we did not make any significant acquisitions in fiscal 2005 or 2006, acquisitions have in the past been part of our business strategy historically. We have acquired other companies, assets or product lines that complement or expand our existing business. These acquisitions have not been entirely successful, and in the fourth quarter of fiscal 2002, we incurred approximately $24.2 million of goodwill impairment charges related to facilities acquired by us in the prior three years. As a result of implementing new accounting pronouncements in fiscal 2003, we recorded an additional goodwill impairment charge of $5.3 million. Although we anticipate seeking further acquisition opportunities, we cannot assure you that we will be able to identify suitable acquisition candidates or finance and complete transactions that we select. We may incorrectly judge the value or worth of an acquired company or business. In addition, its key personnel may decide not to work for us. We may also have difficulty in integrating acquired businesses, products, services and technologies into our operations. These difficulties could disrupt our ongoing business, distract our management and workforce, increase our expenses and adversely affect our operating results. Furthermore, we may incur significant debt or be required to issue equity securities to pay for future acquisitions or investments. The issuance of equity securities could be dilutive to our shareholders. Failure to execute our acquisition strategy may adversely affect our business, financial condition and results of operations.

During periods of significant growth or restructuring, we may have trouble managing our expanded operations.

Rapid growth or contraction can place a significant strain on our management, financial resources and on our information, operations and financial systems. We face risks associated with coordinating multinational operations and reporting systems, diverse technologies and multiple products and services. In addition, our growth has increased our expenses and working capital requirements. If we are unable to manage our growth effectively, it may have an adverse effect on our business, financial condition and results of operations. Similarly, managing reduction in personnel during business restructuring can present control issues as well. We cannot assure you that we will manage our growth or restructuring activities effectively.

Our financial condition could suffer if we fail to successfully defend shareholder lawsuits.

We have been a defendant, along with several current and former officers and directors, in a consolidated putative class action captioned: In re PEMSTAR Securities Litigation. We and our Board were also defendants in a consolidated shareholder derivative action that was based on many of the same facts that gave rise to the securities class action. During fiscal 2006 additional legal actions have arisen. For further information about the nature of these actions see Item 3 of this report. The securities action has been settled. If we are not able to successfully obtain final settlement of the consolidated shareholder derivative actions or other similar actions that could arise in the future, our business and financial condition could suffer.

Increased competition may result in decreased demand or prices for our services.

The electronics manufacturing services industry is highly competitive and characterized by low margins. We compete against numerous U.S. and foreign service providers with global operations, as well as those who operate on a local or regional basis. In addition, current and prospective customers continually evaluate the merits of manufacturing products internally. Consolidation in the electronics manufacturing services industry results in a continually changing competitive landscape. The consolidation trend in the industry also results in larger and more geographically diverse competitors who have significant combined resources with which to compete against us. Some of our competitors have substantially greater managerial, manufacturing, engineering, technical, financial, systems, sales and marketing resources than we do. These competitors may:

• Respond more quickly to new or emerging technologies;

• Have greater name recognition, critical mass and geographic and market presence;

• Be better able to take advantage of acquisition opportunities;

• Adapt more quickly to changes in customer requirements; and

• Devote greater resources to the development, promotion and sale of their services.

10

We also may be operating at a cost disadvantage as compared to competitors who have greater direct buying power from component suppliers, distributors and raw material suppliers or who have lower cost structures. Increased competition from existing or potential competitors could result in price reductions, reduced margins or loss of market share.

We anticipate that our net sales and operating results will fluctuate which could affect the price of our common stock.

Our net sales and operating results have fluctuated and may continue to fluctuate significantly from quarter to quarter. A substantial portion of our net sales in any given quarter may depend on obtaining and fulfilling orders for assemblies to be manufactured and shipped in the same quarter in which those orders are received. Further, a significant portion of our net sales in a given quarter may depend on assemblies configured, completed, packaged and shipped in the final weeks of such quarter. Our operating results may fluctuate in the future as a result of many factors, including:

• Variations in customer orders relative to our manufacturing capacity;

• Variations in the timing of shipment of products to customers;

• Our ability to recognize revenue with respect to products held for customers;

• Introduction and market acceptance of our customers’ new products;

• Changes in competitive and economic conditions generally or in our customers’ markets;

• Effectiveness of our manufacturing processes, including controlling costs;

• Changes in cost and availability of components or skilled labor; and

• The timing and price we pay for acquisitions and related acquisition costs.

Our operating expenses are based on anticipated revenue levels and a high percentage of our operating expenses are relatively fixed in the short term. As a result, any unanticipated shortfall in revenue in a quarter would likely adversely affect our operating results for that quarter. Also, changes in our product assembly mix may cause our margins to fluctuate, which could negatively impact our results of operations for that period. Results in any period should not be considered indicative of the results to be expected in any future period. It is possible that in one or more future periods our results of operations will fail to meet the expectations of securities analysts or investors, and the price of our common stock could decline significantly.

Our predictions of future operating results may not be achieved.

From time to time in earnings releases and otherwise, we may publish forecasts or other forward-looking statements, or comment on the estimates of financial analysts, regarding our future results, including estimated revenues or net earnings. Any forecast of, or comment on, our future performance reflects various assumptions. These assumptions are subject to significant uncertainties, and as a matter of course, any number of them may prove to be incorrect. Further, the achievement of any forecast depends on numerous risks and other factors (including those described in this discussion), many of which are beyond our control. As a result, we cannot assure you that our performance will be consistent with any management forecasts or comments or that the variation from such forecasts or comments will not be material and adverse. You are cautioned not to base your entire analysis of our business and prospects upon isolated predictions, but instead are encouraged to utilize our entire publicly available mix of historical and forward-looking information, as well as other available information affecting our company and our services, when evaluating our prospective results of operations.

Shortages or price fluctuations in component parts specified by our customers could delay product shipments and adversely affect our profitability.

Many of the products we manufacture require one or more components that we order from sole-source suppliers. Supply shortages for a particular component can delay production of all products using that component or cause cost increases in the services we provide. In the past, some of the materials we use, such as capacitors and memory and logic devices, have

11

been subject to industry-wide shortages. As a result, suppliers have been forced to allocate available quantities among their customers and we have not been able to obtain all of the materials desired. Our inability to obtain these needed materials could slow production or assembly, delay shipments to our customers, increase costs and reduce operating income. In certain circumstances, we may bear the risk of periodic component price increases. Accordingly, some component price increases could increase costs and reduce our operating income.

In addition, if we fail to manage our inventory effectively, we may bear the risk of fluctuations in materials costs, scrap and excess inventory, all of which adversely affect our business, financial condition and results of operations. We are required to forecast our future inventory needs based upon the anticipated demand of our customers. Inaccuracies in making these forecasts or estimates could result in a shortage or an excess of materials. A shortage of materials could lengthen production schedules and increase costs. An excess of materials may increase the costs of maintaining inventory and may increase the risk of inventory obsolescence, both of which may increase expenses and decrease our profit margins and operating income.

If we are unable to respond to rapidly changing technologies and process developments, we may not be able to compete effectively.

The market for our products and services is characterized by rapidly changing technologies and continuing process developments. The future success of our business will depend in large part upon our ability to maintain and enhance our technological capabilities, to develop and market products and services that meet changing customer needs and to successfully anticipate or respond to technological changes on a cost-effective and timely basis. Our core technologies could in the future encounter competition from new or revised technologies that render existing technology less competitive or obsolete or that reduce the demand for our services. We cannot assure you that we will effectively respond to the technological requirements of the changing market. If we determine that new technologies and equipment are required to remain competitive, the development, acquisition and implementation of these technologies may require us to make significant capital investments. We cannot assure you that we will be able to obtain capital for these purposes in the future or that investments in new technologies will result in commercially viable technological processes. The loss of revenue and earnings to us from these changing technologies and process developments could adversely affect us.

Operating in foreign countries exposes us to increased risks, which could adversely affect our results of operations.

We currently have foreign operations in China, Ireland, Israel, the Netherlands, Romania, Singapore and Thailand some of which have incurred continuing losses. There is a risk that such losses may be ongoing or require a discontinuance of operations. In such an event, we may not be able to do so without incurring additional losses.

We may in the future expand into other international regions. We have limited experience in managing geographically dispersed operations and in operating in foreign countries. We also purchase a significant number of components manufactured in foreign countries. Because of the scope of our international operations, we are subject to the following risks, which could adversely impact our results of operations:

• Economic or political instability;

• Transportation delays and interruptions;

• Foreign currency exchange rate fluctuations;

• Increased employee turnover and labor unrest;

• Longer payment cycles;

• Greater difficulty in collecting accounts receivable;

• Incompatibility of systems and equipment used in foreign operations;

• Difficulties in staffing and managing foreign personnel and diverse cultures; and

• Less developed infrastructures.

12

In addition, changes in policies by the United States or foreign governments could negatively affect our operating results due to increased duties, increased regulatory requirements, higher taxation, currency conversion limitations, restrictions on the transfer of funds, the imposition of or increase in tariffs and limitations on imports or exports. Also, we could be negatively affected if our host countries revise their policies away from encouraging foreign investment or foreign trade, including tax holidays.

We may be unable to protect our intellectual property, or we may be deemed to be infringing the intellectual property rights of others, either of which would negatively affect our ability to compete and our results.

We rely on our proprietary technology, and we expect that future technological advances made by us will be critical to remain competitive. Therefore, we believe that the protection of our intellectual property rights is, and will continue to be, important to the success of our business. We rely on a combination of patent, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. Despite the steps we have taken to protect our intellectual property, unauthorized parties may attempt to copy or otherwise obtain and use our proprietary technology. We cannot be certain that patents we have or that may be issued as a result of our pending patent applications will protect or benefit us or give us adequate protection from competing technologies. We also cannot be certain that others will not develop our unpatented proprietary technology or effective competing technologies on their own.

From time to time, third parties including our customers and competitors, may assert patent, copyright and other intellectual property rights to technologies that are important to us. In this regard, in August 2002, we were named as defendant in one of a number of actions currently being pursued by the Lemelson Foundation Partnership based on alleged infringements of patent rights it claims in certain imaging analysis technology. The litigation has been stayed pending the resolution of other litigation, to which we are not a party, asserting the invalidity and/or unenforceability of certain Lemelson patents. Patents held by other companies, including Lemelson, may be determined to be valid, and some of our products may ultimately be determined to infringe the patents or other intellectual property of other companies. The results of any litigation are inherently uncertain. In the event of an adverse result in any litigation with respect to intellectual property rights relevant to our products, we could be required to obtain licenses to the infringing technology, to pay substantial damages under applicable law, to cease the manufacture, use and sale of infringing products or to expend significant resources to develop non-infringing technology. Licenses may not be available from third parties, either on commercially reasonable terms or at all. In addition, litigation frequently involves substantial expenditures and can require significant management attention, even if we ultimately prevail. Accordingly, any infringement claim or litigation against us could significantly harm our business, operating results and financial condition.

Our business could suffer if we lose the services of, or fail to attract, key personnel.

Our future success largely depends on the skills and efforts of our executive management and our engineering, manufacturing and sales employees. We do not have employment contracts or non-competition agreements with any of our executive management or other key employees. The loss of services of any of our executives or other key personnel could negatively affect our business. Our continued growth will also require us to attract, motivate, train and retain additional skilled and experienced managerial, engineering, manufacturing and sales personnel. We face intense competition for such personnel. We may not be able to attract, motivate and retain personnel with the skills and experience needed to successfully manage our business and operations.

We are subject to a variety of environmental laws, which expose us to potential financial liability.

Our operations are regulated under a number of federal, state, provincial, local and foreign environmental laws and regulations, which govern, among other things, the discharge of hazardous materials into the air and water as well as the handling, storage and disposal of such materials. Compliance with these environmental laws is a significant consideration for us because we use metals and other hazardous materials in our manufacturing processes. We may be liable under environmental laws for the cost of cleaning up properties we own or operate if they are or become contaminated by the release of hazardous materials, regardless of whether we caused the release. In addition, we, along with any other person who arranges for the disposal of our wastes, may be liable for costs associated with an investigation and remediation of sites at which we have arranged for the disposal of hazardous wastes, if such sites become contaminated, even if we fully comply with applicable environmental laws. In the event of contamination or violation of environmental laws, we could be held liable for damages including fines, penalties and the costs of remedial actions and could also be subject to revocation of our discharge permits. Any such penalties or revocations could require us to cease or limit production at one or more of our facilities, thereby harming our business.

13

Failure to maintain an effective system of internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could inhibit our ability to accurately report our financial results and have a material adverse impact on our business and stock price.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports our operating results could be harmed. We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement. Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent auditors addressing these assessments. Due to the low level of our market value at the end of the second quarter of fiscal 2006, the requirements for this management assessment and independent auditors’ report on internal controls will be suspended for fiscal 2006 under current SEC rules. These requirements will resume for fiscal 2007. During the course of this assessment with respect to our fiscal year ended March 31, 2005, we identified several material weaknesses in our system of internal control, which have been remediated. Failure to successfully identify and remediate material weaknesses in our system of internal control could affect the accuracy of our financial reporting which could have a material adverse effect on our stock price when any such inaccuracies are discovered and disclosed.

Risks Relating to Our Common Stock

The market price of our common stock could fluctuate in response to quarterly operating results and other factors.

The market price of our common stock has fluctuated significantly in the past and may fluctuate significantly in the future in response to quarterly operating results and other factors, including many over which we have no control and that may not be directly related to us. The stock market has from time to time experienced extreme price and volume fluctuations, which have often been unrelated or disproportionate to the operating performance of particular companies. Fluctuations or decreases in the trading price of our common stock may adversely affect your ability to trade your shares and you may lose all or part of your investment. In addition, these fluctuations could adversely affect our ability to raise capital through future equity financings.

Future sales of our common stock may cause our stock price to decline and may cause dilution to our existing shareholders.

As of May 31, 2006, our directors, executive officers and largest shareholder beneficially owned an aggregate of 6,702,528 shares, or 14.6%, of our common stock. In addition, substantially all of our outstanding shares of common stock are freely tradable without restriction or further registration. Sales of substantial amounts of common stock by our shareholders or even the potential for such sales, may cause the market price of our common stock to decline and could impair our ability to raise capital through the sale of our equity securities.

As noted above, we may need additional funding, which may be raised through issuances of equity securities and securities convertible into equity securities, to provide us with the capital to reach our objectives. We also have the right to issue, at the discretion of our board of directors, shares upon such terms and conditions and at such prices as our board of directors may establish. In addition, we may in the future issue preferred stock that might have priority over our common stock as to distributions and liquidation proceeds. Such offerings would dilute the ownership interest of existing shareholders and could cause a dilution of the net tangible book value of such shares.

Provisions in our charter documents and Minnesota law may delay or prevent an unsolicited takeover effort to acquire our company, which could inhibit your ability to receive an acquisition premium for your shares.

Provisions of our amended articles of incorporation and our amended and restated bylaws and provisions of Minnesota law may delay or prevent an unsolicited takeover effort to acquire our company on terms that you may consider to be favorable. These provisions include the following:

• No cumulative voting by shareholders for directors;

• A classified board of directors with three-year staggered terms;

• The ability of our board to set the size of the board of directors, to create new directorships and to fill vacancies;

14

• The ability of our board, without shareholder approval, to issue preferred stock, which may have rights and preferences that are superior to our common stock;

• The ability of our board to amend the bylaws;

• A shareholder rights plan, which discourages the unauthorized acquisition of 15% or more of our common stock or an unauthorized exchange or tender offer;

• Restrictions under Minnesota law on mergers or other business combinations between us and any holder of 10% or more of our outstanding common stock; and

• A requirement that at least two-thirds of our shareholders and at least two-thirds of our directors approve certain amendments of our articles of incorporation.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

15

ITEM 2. PROPERTIES

Our executive offices are located in Rochester, Minnesota, where we also have engineering and manufacturing facilities. Information about all of our facilities is set forth below:

Location	Approximate Square Feet	Owned/Leased	Principal Services
Rochester, Minnesota	257,000	Leased	Headquarters, engineering and manufacturing
Dunseith, North Dakota	47,000 53,000	Owned(1) Leased	Manufacturing
Austin, Texas	94,000	Leased	Manufacturing
San Jose, California	17,000	Leased	Engineering
Tianjin, China	283,000	Owned	Manufacturing
Shenzhen, China	138,000	Leased	Manufacturing
Bangkok, Thailand	180,000	Owned(1)	Manufacturing
Singapore	60,000	Leased	Engineering and manufacturing
Almelo, the Netherlands	130,000	Leased	Engineering and manufacturing
Navan, Ireland	26,000	Leased	Manufacturing
Brasov, Romania	30,000	Leased	Manufacturing
Inactive
Mountain View, California (2 facilities)	38,000 7,000	Leased Leased	Vacated in fiscal 2004
Taunton, Massachusetts	85,000	Leased	Vacated in fiscal 2005
San Jose, California	141,000	Leased	Vacated in fiscal 2006

(1) Property is pledged under a mortgage to a bank lender.

We believe our facilities are well maintained and suitable for their respective operations. We anticipate that as our business grows, we will need to acquire, lease or build additional facilities. We may encounter unforeseen difficulties, costs or delays in expanding our facilities.

16

ITEM 3. LEGAL PROCEEDINGS

On August 23, 2002 and October 2, 2002, certain members of the Company’s Board and its officers were named as defendants in two identical derivative actions brought by individual shareholders. Those actions were consolidated into a single case captioned, In re PEMSTAR INC. Derivative Litigation, Master File No. 55-C3-03-003693 (Olmsted County District Court). The case alleges that the defendants breached their fiduciary duties by failing to prevent alleged accounting violations and by allowing officers and directors to allegedly violate the insider trading laws. The Complaint was not limited to a time period. The individual defendants denied any liability and ultimately the case was settled in exchange for the Company making various corporate governance enhancements and the payment of $750,000 – all of which was paid from proceeds from our insurer. After the Olmsted County district court approved the settlement and entered judgment, an individual who claimed to own Company shares appealed the settlement on November 8, 2005. The appeal is currently pending in the Minnesota Court of Appeals. The Company believes the appeal lacks merit.

On June 16, 2005 a putative class action was filed by an individual shareholder against PEMSTAR and certain of its current officers and directors. The lawsuit is pending in the United States District Court for the District Court of Minnesota and is captioned: In re PEMSTAR INC. Securities Litigation, Civil Action No. 05-CV-01182 – JMR/FLN. The lawsuit alleges violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 and Section 11 of the Securities Act of 1933. An Amended Complaint was filed on November 28, 2005 which set forth the claim and established that the action was going forward with a lead plaintiff and lead counsel for the plaintiff class. The plaintiff alleges, in essence, that the defendants defrauded our shareholders by failing to timely disclose the circumstances around the discrepancies in the accounting of the Mexico facility that generated a restatement. The lawsuit also alleges that the registration statement filed by us in connection with a secondary offering contained false, material misrepresentations. The plaintiff seeks to represent a class of persons who purchased Company stock from January 30, 2003 through and including January 12, 2005. An Amended Consolidated Complaint was filed January 9, 2006. The Amended Complaint does not specify an amount of damages. Discovery is ongoing. The Company and the individuals will vigorously defend against the claim and believe the lawsuit is without merit.

On July 26, 2005, an individual who claims to own Company shares filed a derivative action in Olmsted County District Court captioned: Michael Tittle, et al. v. Allen Berning, et al. Civil No. 55-CO-05-003235. An Amended Complaint was filed on November 11, 2005, which established that the action was going forward and set forth the claim. The lawsuit alleges that the Company’s Board of Directors breached their fiduciary duties by allowing circumstances to exist that generated a restatement. The lawsuit includes allegations that the defendants believe have been released as part of the settlement of the derivative lawsuit discussed above. A motion to dismiss the lawsuit is pending and the Court has stayed the proceeding pending resolution of the appeal of the settlement of the derivative case discussed above.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

Roy A. Bauer, 60, is President, and has served in that capacity since December 2004 and Chief Operating Officer and has served in that capacity since July 2002 and has worked for Pemstar in various capacities since 2001. He has served on the Board of Directors since 2004. Prior to joining Pemstar, Mr. Bauer was employed by IBM for twenty-four years in various positions in manufacturing, product development, and quality management. As Director of WW AS/400 System Quality and Customer Satisfaction, he led the IBM Rochester site in winning the Malcolm Baldrige National Quality Award in 1990. After leaving IBM in 1992, Mr. Bauer authored several books on quality, strategy, managing organizational change, and product development, and consulted with a number of Fortune 100 companies on these topics. He also consulted on information technology operations for the Nagano and Sydney Olympic Games. Mr. Bauer is currently serving on the Board of Directors of the University of Wisconsin Stout Foundation and in May of 2003 was named to the Panel of Judges of the Malcolm Baldrige National Quality Award Program. Mr. Bauer holds a B.S. in Industrial Technology and an honorary Doctorate of Science from the University of Wisconsin-Stout.

Allen J. Berning, 51, has served as Chief Executive Officer, director and Chairman of the Board since the founding of Pemstar in 1994. Prior to founding Pemstar, Mr. Berning was employed by IBM for fifteen years, where he held several engineering and management positions in process engineering, manufacturing, cost engineering and resource planning, including most recently as Operations Manager for IBM’s Rochester Storage Systems facility. Mr. Berning received a B.S.I.E. and an M.B.A. from St. Cloud State University. In 2005 he was selected by Minnesota Governor Tim Pawlenty to serve on the Rochester Higher Education Development Committee. He served as board member and past chair of the Greater Rochester Area University Center. He is currently serving on the 2006 Olmsted County United Way Campaign Cabinet. In 1999, Mr. Berning received the national Ernst & Young Entrepreneur of the Year Award.

17

Bruce Borgerding, 55, is Vice President, General Counsel of Pemstar and has served in that capacity since February 2005. Prior to joining Pemstar, Mr. Borgerding completed a one year consultant project with Zimmer Spine as its principal in-house attorney. Prior to that Bruce worked at Medtronic doing large business development, M&A work and large commercial contracting work from 2001 to 2003 and worked as legal counsel at H.B. Fuller Company and Tennant Company from 1988 to 2001. Mr. Borgerding has over 20 years of experience with emphasis in business development, product distribution, intellectual property management, strategic planning, mergers and acquisitions, employment matters and corporate secretarial duties. Mr. Borgerding holds a B.A. in physics/chemistry from Florida Atlantic University, a J.D. from William Mitchell College of Law, and an M.B.A. from the University of St. Thomas.

Larry R. Degen, 51, is a Vice President and has served as our Principal Accounting Officer since 2002. Prior to that, he served Pemstar as Corporate Controller since 1999. Mr. Degen was employed as Finance Director, North America by Capital Safety Company Ltd (formerly a division of BTP plc), a safety products manufacturer, from 1994 to 1999. Previously, he held various senior financial positions, including auditing services positions over a 15 year period with Ernst & Young. He holds a B.A. in Accounting and Business Administration/Economics from St. John’s University.

Gregory S. Lea, 53, is an Executive Vice President and our Chief Financial Officer and has been a director of Pemstar since April 2001. From 1993 to April 2002, Mr. Lea served as a corporate Vice President for Jostens Corporation, a commemorative and affiliation products manufacturer, serving most recently as corporate Vice President—Business Ventures. From 1993 to 1999, Mr. Lea held two other corporate vice presidency positions at Jostens Corporation. From 1974 to 1993, Mr. Lea was employed by IBM Corporation, where he held several financial management and administrative positions. From 1981 to 1993, Mr. Lea was President and a member of the Board of Directors of the Ability Building Center, Inc. Mr. Lea holds a B.S. in Accounting/Business Management from Minnesota State University, Mankato.

18

PART II.

ITEM 5. MARKET FOR PEMSTAR’S COMMON STOCK AND RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is quoted on the NASDAQ national market under the symbol “PMTR”. The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock, as reported on the NASDAQ national market.

	High		Low
Fiscal 2005:
First Quarter	$	4.00	$	1.93
Second Quarter	$	2.40	$	1.61
Third Quarter	$	2.09	$	1.15
Fourth Quarter	$	2.06	$	1.04
Fiscal 2006:
First Quarter	$	1.35	$	0.97
Second Quarter	$	1.24	$	0.89
Third Quarter	$	1.71	$	1.03
Fourth Quarter	$	2.41	$	1.44
Fiscal 2007:
First Quarter (through June 9, 2006)	$	3.64	$	1.85

Holders

As of June 9, 2006, our common stock was held by approximately 764 shareholders of record and was quoted at $3.18 per share.

Dividends

We have never declared or paid any dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain future earnings to fund the development and growth of our business. Our credit facility contains certain covenants, which prohibit us from paying any cash dividends without prior consent of the lenders.

19

ITEM 6. SELECTED FINANCIAL DATA

The following table summarizes financial data regarding our business and should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and the related notes included in this report.

	Year Ended March 31,
(In thousands, except per share data)	2006			2005			2004			2003			2002
Consolidated Statements of Operations Data:
Net sales	$	871,018		$	659,651		$	629,830		$	621,137		$	617,826
Cost of goods sold		828,970			616,241			580,603			587,092			585,257
Gross profit		42,048			43,410			49,227			34,045			32,569
Selling, general and administrative expenses		43,741			56,673			49,729			49,679			49,813
Restructuring costs		10,462			4,956			7,876			3,744			—
Amortization		45			219			106			129			2,153
Goodwill impairment charges		—			—			—			—			24,228
Operating loss		(12,200	)		(18,438	)		(8,484	)		(19,507	)		(43,625	)
Other expense (income) – net		47			(738	)		(352	)		(79	)		(86	)
Interest expense		9,587			8,162			7,831			8,875			7,137
Loss before income taxes before cumulative effect of accounting change		(21,834	)		(25,862	)		(15,963	)		(28,303	)		(50,676	)
Income tax (benefit) expense		(965	)		(1,825	)		(196	)		356			(1,990	)
Loss from continuing operations before cumulative effect of accounting change		(20,869	)		(24,037	)		(15,767	)		(28,659	)		(48,686	)
Loss from discontinued operations		(7,284	)		(9,700	)		(9,517	)		(4,759	)		(5,331	)
Loss before cumulative effect of accounting change		(28,153	)		(33,737	)		(25,284	)		(33,418	)		(54,017	)
Cumulative effect of accounting change (1)		—			—			—			(5,346	)		—
Net loss	$	(28,153	)	$	(33,737	)	$	(25,284	)	$	(38,764	)	$	(54,017	)
Basic and diluted loss per common share:
Loss from continuing operations before cumulative effect of accounting change per common share:	$	(0.46	)	$	(0.53	)	$	(0.37	)	$	(0.77	)	$	(1.40	)
Loss from discontinued operations		(0.16	)		(0.22	)		(0.23	)		(0.13	)		(0.16	)
Loss before cumulative effect of accounting change		(0.62	)		(0.75	)		(0.60	)		(0.90	)		(1.56	)
Cumulative effect of accounting change		—			—			—			(0.14	)		—
Net loss	$	(0.62	)	$	(0.75	)	$	(0.60	)	$	(1.04	)	$	(1.56	)
Weighted average number of common shares outstanding (2):
Basic and diluted		45,212			45,154			42,002			37,133			34,717
Other Financial Data:
Depreciation from continuing operations	$	16,876		$	21,410		$	21,059		$	19,186		$	17,677
Capital expenditures for continuing operations		5,126			10,685			21,298			11,647			34,605
Supplemental Data (from continuing operations):
Net cash (used in) provided by operating activities	$	(9,086	)	$	28,060		$	(10,266	)	$	37,503		$	13,575
Net cash used in investing activities		(2,728	)		(8,108	)		(21,054	)		(14,750	)		(58,145	)
Net cash provided by (used in) financing activities		2,717			(642	)		18,718			(9,946	)		66,253
EBITDA from continuing operations(3)		4,674			3,929			13,033			(112	)		519
	As of March 31,
	2006			2005			2004			2003			2002
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	17,903		$	25,883		$	9,792		$	32,044		$	11,483
Working capital		22,224			25,497			50,889			52,723			75,388
Total assets		334,232			343,994			394,133			372,062			395,724
Long-term debt and capital lease obligations less current maturities		23,607			18,533			20,723			23,118			12,515
Total shareholders’ equity		94,742			125,171			158,309			159,867			193,397
Book value per common share (4)	$	2.09		$	2.77		$	3.51		$	4.26		$	5.27
Tangible book value per common share (4)	$	1.34		$	2.02		$	2.75		$	3.35		$	4.32

(1) Write down of Goodwill upon implementation of SFAS 142, effective April 1, 2002.

(2) For an explanation of the determination of the weighted average number of common shares outstanding used in computing net loss per common share, see Note 1 to the consolidated financial statements.

(3) EBITDA from continuing operations means net (loss) income from continuing operations before interest expense, income taxes, depreciation and amortization (including any goodwill impairment). EBITDA from continuing operations is presented because we believe it is an indicator of our ability to incur and service debt. A similar formula is used by our lenders for determining compliance with our financial covenants. However, EBITDA from continuing operations should not be considered as an alternative to cash flow from operating activities, as a measure of liquidity or as an alternative to net income as a measure of operating results in accordance with generally accepted accounting principles. Goodwill impairment is included in the calculation of EBITDA from continuing operations because we believe it represents a non-cash charge similar to amortization and enhances the usefulness of this measure for the purposes stated above. Other companies may compute EBITDA from continuing operations in a different manner.

(4) Tangible book value is total shareholders’ equity less goodwill and other intangible assets. Per common share amounts for book value and tangible book value are based on common shares outstanding at March 31 for the respective years.

20

SELECTED FINANCIAL DATA (Continued)

The following table reconciles net (loss) income from continuing operations to EBITDA from continuing operations and should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and the related notes included in this report.

	Year Ended March 31,
(In thousands)	2006			2005			2004			2003			2002
EBITDA from continuing operations:
Net loss from continuing operations	$	(20,869	)	$	(24,037	)	$	(15,767	)	$	(34,005	)	$	(48,686	)
Interest expense		9,587			8,162			7,831			8,875			7,137
Income tax (benefit) expense		(965	)		(1,825	)		(196	)		357			(1,990	)
Depreciation		16,876			21,410			21,059			19,186			17,677
Amortization		45			219			106			129			2,153
Goodwill impairment charge		—			—			—			—			24,228
Cumulative effect of accounting change		—			—			—			5,346			—
Net income (loss) from continuing operations before interest expense, income taxes, depreciation and amortization (EBITDA from continuing operations)	$	4,674		$	3,929		$	13,033		$	(112	)	$	519

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with the “Selected Financial Data” section of this report and our consolidated financial statements and notes to those statements included elsewhere in this report. The forward-looking statements in this discussion regarding the electronics manufacturing services industry, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion include numerous risks and uncertainties. Our actual results may differ materially from those contained in any forward-looking statement. See Item 1A in Part I of this report for a discussion of these risks and uncertainties.

OVERVIEW

We provide a comprehensive range of global engineering, product design, automation and test, manufacturing and fulfillment services to customers in the communications, computing and data storage, industrial equipment, and medical industries. We provide these services on a global basis through eleven strategic locations in the Americas, Asia and Europe. These customer solutions support our customers’ products from initial development and design through manufacturing to worldwide distribution and aftermarket support.

Pemstar was founded in January 1994 by a group of eight senior IBM managers who had led the storage product operations at IBM’s Rochester, Minnesota facility. We have maintained a significant relationship with IBM, which remains one of our largest customers. Since our inception, we have diversified our customer base to include industry leading and emerging original equipment manufacturers. We have also expanded our geographic presence, enhanced our product and service offerings and increased our volume production capabilities. Since inception, our key remaining growth initiatives have been the opening of facilities in Navan, Ireland; Singapore, and Bangkok, Thailand and the acquisition of established businesses in Almelo, the Netherlands; Dunseith, North Dakota; and Mountain View, California. We have completed expansions in our Austin, Texas and Tianjin, China operations as well as entered into a joint venture start-up agreement in Brasov, Romania as of April, 2004. These growth initiatives have given us:

• expanded geographic presence in established and emerging markets and strengthened our presence in target industries;

• enhanced product and service offerings in our chosen geographies, while allowing us to offer cost-effective manufacturing and engineering capabilities;

• access to new customers or additional business from existing customers; and

• specialized product design, automation and test and manufacturing customer solutions.

21

Our sales are generally derived from master supply and manufacturing agreements, with current demand evidenced by purchase orders, or from specific purchase orders for discrete projects. We charge our customers separately for engineering and manufacturing services. We recognize revenues from product sales, net of product returns and warranty costs, typically at the time of product shipment. In limited circumstances, although the product remains in our facilities, we recognize revenue when title to, and risks and rewards of ownership of, the products have contractually passed to the customer. Revenue from services is recognized as they are performed and collection is reasonably certain. Our sales from engineering services, which include process test and automation equipment and prototype development, accounted for 8.2%, 13.3% and 12.4% of our total net sales in fiscal 2006, 2005 and 2004, respectively. Manufacturing services, including process test and automation equipment and prototype production, accounted for 91.8%, 86.7% and 87.6% of our total net sales in fiscal 2006, 2005 and 2004, respectively.

Our cost of goods sold includes the cost of components and materials, labor costs and manufacturing overhead. The procurement of raw materials and components requires us to commit significant working capital to our operations and to manage the purchasing, receiving, inspection and stocking of these items. Our production volumes are based on purchase orders for the delivery of products. These orders typically do not commit firm production schedules for more than 30 to 90 days in advance. We work to minimize the risk of obsolete inventory by ordering materials and components only to the extent necessary to satisfy existing customer orders. To the extent our orders of materials and components for specific jobs exceed products ultimately delivered to our customers and they are not held fully responsible for our excess inventory, due to their financial condition or business relationship considerations, we may incur a charge for inventory obsolescence for the excess inventory. We believe we are largely protected from the risk of inventory price increases, because we generally can pass these costs through to our customers.

Our operating results are also impacted by the level of capacity utilization of our manufacturing facilities, indirect manufacturing labor, and selling, general and administrative expenses. During periods of high capacity utilization, our gross margins and operating margins generally improve, while during periods of lower capacity utilization, our gross margins and operating margins generally decline. Our infrastructure will support substantially higher levels of sales than our current net sales. Reduction in production space during fiscal 2006, 2005 and 2004 and increases in our Austin, Texas and Tianjin, China facilities during fiscal 2004 were made in response to market conditions in the affected geographies. We continue to evaluate market conditions and capacity requirements and will make appropriate adjustments as needed.

RESULTS OF OPERATIONS

The table below sets forth certain operating data expressed as a percentage of our net sales for the years indicated:

	Year Ended March 31,
	2006		2005		2004
Net sales	100.0	%	100.0	%	100.0	%
Cost of goods sold	95.2	%	93.4	%	92.2	%
Gross profit	4.8	%	6.6	%	7.8	%
Selling, general and administrative expenses	5.0	%	8.6	%	7.9	%
Restructuring	1.2	%	.8	%	1.3	%
Operating loss	(1.4	)%	(2.8	)%	(1.4	)%
Other (income) expense – net	.0	%	(.1	)%	(.1	)%
Interest expense	1.1	%	1.2	%	1.2	%
Loss before income taxes	(2.5	)%	(3.9	)%	(2.5	)%
Income tax (benefit) expense	(.1	)%	(.3	)%	.0	%
Loss from continuing operations	(2.4	)%	(3.6	)%	(2.5	)%
Loss from discontinued operations	(.8	)%	(1.5	)%	(1.5	)%
Net loss	(3.2	)%	(5.1	)%	(4.0	)%

Fiscal Year Ended March 31, 2006 Compared to Fiscal Year Ended March 31, 2005

Net sales – Our net sales for fiscal 2006 increased $211.3 million, or 32.0%, to $871.0 million from $659.7 million in fiscal 2005. These totals include sales of excess inventory of $9.7 million and $11.4 million in fiscal 2006 and fiscal 2005, respectively. Sales of excess inventory include proceeds from the return of excess inventory at cost to customers under the terms of sales contracts. Excluding inventory sales, fiscal 2006 sales were up by $213.0 million when compared to fiscal

22

2005. Increased sales resulted primarily from expanded turnkey operations with an existing customer. These turnkey sales totaled $272.9 million in fiscal 2006. The term turnkey sales refers to the revenue increase resulting from our customer’s decision to have us acquire the material previously acquired by the customer and consigned to us for use in their product. This reference assists in the comparison of actual business volume, which has occurred in the years being discussed. The increase due to turnkey sales was partially offset by customer disengagements within site closures, discontinuation of non-profitable projects and the impact of existing product life cycles and transitions. The offset affected all of our market segments. Specifically, our sales to the medical industry declined $9.3 million. Industrial sales were down $17.9 million and computing and data storage sales were down $.3 million. Outside of the increased turnkey business, our remaining communications sector was down by $34.1 million. On a percentage basis, excluding the turnkey sales, our industrial equipment industry net sales percentage increased to 46.0% of sales from 44.4% in fiscal 2005. Net sales to the computer and data storage industry increased to 34.3% of sales versus 31.2% a year ago and net sales to the medical industry were 1.5% of sales compared to 2.8% in fiscal 2005. Net sales to communication customers for fiscal 2006 decreased as a percentage of total sales to 18.2% of sales compared to 21.6% in fiscal 2005. With turnkey sales included, the Company’s five largest customers for fiscal 2006 accounted for approximately 76.3% of net sales with Motorola accounting for 40.8% and IBM comprising 19.7% of fiscal 2006 sales.

Gross profit - Our gross profit decreased $1.4 million in fiscal 2006 to $42.0 million, or 4.8% of net sales, from $43.4 million, or 6.6% of net sales, in fiscal 2005. Both fiscal years include sales of excess inventories at cost of materials which cause our gross profit percentage to be lower than if no such sales were included in that period. The gross margin excluding inventory sales would have been 4.9% and 6.7% for fiscal years 2006 and 2005, respectively. In fiscal 2006, excluding the turnkey sales, gross margins would have risen to 7.0%. Our gross profit to the industrial market decreased $2.9 million. Our computing and data storage gross profit increased $2.6 million on slightly lower sales. The communications gross margins increased $.6 million. The medical industry gross margins decreased $1.7 million. Also included in the gross profit changes are increased inventory write-downs of $4.9 million in fiscal 2006 compared to $4.4 million in fiscal 2005. During fiscal 2006, we continued our planned restructuring efforts including the reduction of headcount and consolidation of certain facilities to further reduce our cost structure. We will continue to monitor and take actions in order to balance our cost structure to the anticipated level of net sales.

Selling, general and administrative expenses - Our selling, general and administrative expenses decreased to $43.7 million (5.0% of net sales) in fiscal 2006 from $56.7 million (8.6% of net sales) in fiscal 2005. We incurred charges for accounts receivable of $2.8 million in fiscal 2006 due to uncertainty of collection of accounts receivable from emerging companies and customers in bankruptcy compared to $0.8 million in fiscal 2005. Expenses related corporate restructuring initiatives and site resource reorganizations during fiscal 2006 were taken to reduce selling, general and administrative expenses.

Restructuring costs – In fiscal 2006, we recognized restructuring costs of $10.5 million related to numerous actions taken to reduce our cost structure compared to $5.0 million in fiscal 2005. The actions include personnel severance costs of $0.4 million, consolidation of certain facilities and lease commitments of $8.0 million and write-offs of certain assets of $2.1 million. These actions were taken due to continued sluggish end market demand and a slow down in semi-conductor capital equipment orders leading to increased excess capacity and net losses in the Americas region. The actions taken combined overhead infrastructure resources in our Midwest and West Coast operations. We also eliminated 161 positions from Americas and Corporate operations. These position eliminations ranged from production workforce to senior management. Savings related to facility consolidations, overhead reorganizations and headcount reductions during fiscal 2006 are expected to be $7.6 million annually beginning with the third quarter of fiscal 2006.

Other expense (income) - Other expense (income), net, was $0.0 million in fiscal 2006 compared to (income) of $(0.7) million in fiscal 2005. This change in other expense (income) was primarily a result of ($1.8 million) year-to-year change in gains/losses on sale of assets offset by reduced ($0.6 million) currency exchange losses in certain foreign locations compared to fiscal 2005 amounts.

Interest expense - Interest expense increased $1.4 million to $9.6 million in fiscal 2006 from $8.2 million expense in fiscal 2005. This increase largely reflects increased borrowings under our Asian credit facilities.

Income tax expense (benefit) - The income tax benefit was $1.0 million in fiscal 2006 compared to benefit of $1.8 million in fiscal 2005. This benefit results primarily from the $1.2 million net benefit recorded from the valuation of deferred tax assets of foreign sites, primarily reflecting the ability to partially value the net operating losses available to offset future profits in the Netherlands. The low effective tax rate for fiscal 2006 and 2005 is a result of no tax benefits being recognized on operating losses in the United States. Our effective income tax rate will continue to be low until these operations are sufficiently profitable to allow realization of the significant tax loss carryforwards available. In addition, we have tax holidays and reduced rate benefits in China and Thailand, which caused our 2006 effective rate to be low. As

23

these holidays expire, we expect the effective rate to increase. The fiscal 2005 benefit includes special claims for prior taxes paid of $0.8 million in China based upon reinvested profits and $0.3 million of deferred tax assets recorded related to prior operating loss carryforwards of currently profitable operations in Israel.

Discontinued operations – The closure of our site in Mexico in fiscal 2006 constitutes a discontinued operation. As such, losses on operation and site closure within fiscal 2006 and comparable amounts from prior years have been segregated within the results shown for all respective years’ consolidated statements of operations.

Fiscal Year Ended March 31, 2005 Compared to Fiscal Year Ended March 31, 2004

Net sales – Our net sales for fiscal 2005 increased $29.9 million, or 4.7%, to $659.7 million from $629.8 million in fiscal 2004. These totals include sales of excess inventory of $11.4 million and $8.4 million for fiscal 2005 and fiscal 2004, respectively. Sales of excess inventory include proceeds from the return of excess inventory at cost to customers under the terms of sales contracts. Excluding excess inventory sales, fiscal 2005 sales were up by $26.9 million when compared to fiscal 2004. Increased sales resulted from expanded operations with an existing customer of $46.4 million, increased orders from our largest customer of $13.2 million, and winning new business from new and existing customers primarily in the industrial and communications markets. This increase was, offset by the phase out of certain underperforming consumer projects in the communications and computing and data storage markets. Sales to the medical industry also decreased primarily as a result of customer project life cycles and transitions. Specifically, industrial sales were up $81.8 million, offset by a decrease in sales of $11.7 million in our computing and data storage business, $32.2 million in our communications market and $8.0 million in medical. Industrial equipment industry net sales increased to 44.4% of sales from 33.5% in fiscal 2004. This increase is primarily due to a full year of operations in Austin, Texas which accounted for $42.6 million of growth over fiscal 2004. Net sales to the computer and data storage industry decreased to 31.2% of sales versus 34.5% a year ago and net sales to the medical industry were 2.8% of sales compared to 4.2% in fiscal 2004. Net sales to communication customers for fiscal 2005 decreased as a percentage of total sales to 21.6% of sales compared to 27.8% in fiscal 2004. Included in these changes in sales by market was an increase in our engineering services sales to 13.3% of net sales from 12.4% in fiscal 2004. Engineering services includes sales from our product development, test and automation projects. The Company’s five largest customers in fiscal 2005 accounted for approximately 53.6% of net sales with IBM accounting for 24.6% and Applied Materials comprising 13.2% of fiscal 2005 sales.

Gross profit - Our gross profit decreased $5.8 million in fiscal 2005 to $43.4 million, or 6.6% of net sales, from $49.2 million, or 7.8% of net sales, in fiscal 2004. Both fiscal years include sales of excess inventories at cost of materials which cause our gross profit percentage to be lower than if no such sales were included in that period. The gross margin excluding excess inventory sales would have been 6.7% and 7.9% for fiscal years 2005 and 2004, respectively. The lower sales to communications customers resulted in decreased gross profit of $.1 million. Our gross profit to the industrial market decreased $2.5 million on overall higher sales, however was impacted by a lower margin mix of projects and a slowing of semi-conductor capital equipment orders in the second half of the fiscal year. The computing and data storage business decreased by $4.7 million. These decreases were offset by improved margin performance in our medical business of $1.5 million. Included in these changes in gross profit was a significant decline in gross profit at one of our product development operations compared to the prior year due to the delay of a major project. Also included in the gross profit changes are increased inventory write-downs of $4.4 million in fiscal 2005 compared to $0.0 million for fiscal 2004. During fiscal 2005, we continued our planned restructuring efforts including the reduction of headcount and consolidation of certain facilities to further reduce our cost structure.

Selling, general and administrative expenses - Our selling, general and administrative expenses increased to $56.7 million (8.6% of net sales) in fiscal 2005 from $49.7 million (7.9% of net sales) in fiscal 2004. We incurred charges for accounts receivable of $0.8 million in fiscal 2005 due to uncertainty of collection of accounts receivable from emerging companies and customers in bankruptcy compared to $0.8 million in fiscal 2004. Other factors affecting the increase in selling, general, and administrative expenses were higher accounting and audit fees of $2.3 million, expanded Asia operations of $2.1 million, salaries and benefits of $1.7 million, full year expenses associated with the Austin, Texas operations of $1.1 million, and increased legal fees of $0.5 million. Corporate restructuring initiatives and site resource reorganizations during fiscal 2005 were taken to reduce selling, general and administrative expenses in fiscal 2006.

Restructuring costs – In fiscal 2005, we recognized restructuring costs of $5.0 million related to numerous actions taken to reduce our cost structure compared to $7.9 million in fiscal 2004. The actions include, but are not limited to, personnel severance costs of $0.9 million, consolidation of certain facilities and lease commitments of $2.7 million and write-offs of certain assets of $1.3 million. These actions were taken due to continued sluggish end market demand and a slow down in semi-conductor capital equipment orders leading to increased excess capacity and net losses in the Americas region. The actions taken were to close our Hortolandia, Brazil and Taunton, Massachusetts facilities and eliminate surplus space in

24

Rochester, Minnesota and Chaska, Minnesota. In addition, we combined overhead infrastructure resources in our Midwest and West Coast operations. We also eliminated 166 positions from Americas and Corporate operations. These position eliminations ranged from production workforce to senior management. Savings related to facility consolidations, overhead reorganizations and headcount reductions during fiscal 2005 are expected to be $10.0 million annually.

Other (income) expense - Other income, net, was $0.7 million in fiscal 2005 compared to $0.4 million in fiscal 2004. This change in other income was primarily a result of a gains/losses on sale of land and other assets ($1.3 million in fiscal 2005) offset by reduced ($0.8 million) currency exchange gains in certain foreign locations compared to fiscal 2004 amounts.

Interest expense - Interest expense increased $0.4 million to $8.2 million in fiscal 2004 from $7.8 million in fiscal 2004. This increase largely reflects increased borrowings under our Asian credit facilities.

Income tax expense (benefit) - The income tax benefit was $1.8 million in fiscal 2005 compared to benefit of $0.2 million in fiscal 2004. The low effective tax rate for fiscal 2005 is a result of no tax benefits being recognized on operating losses in the United States and Netherlands. Our effective income tax rate in these countries will continue to be low until these operations are sufficiently profitable to allow realization of the significant tax loss carryforwards available. In addition, we have tax holidays and reduced rate benefits in Singapore, China and Thailand, which caused our effective rate to be low. As these holidays expire, we expect the effective rate to increase. The fiscal 2005 benefit includes special claims for prior taxes paid of $0.8 million in China based upon reinvested profits and $0.3 million of deferred tax assets recorded related to prior operating loss carryforwards of currently profitable operations in Israel.

Discontinued operations – The closure of our site in Mexico in fiscal 2006 constitutes a discontinued operation. As such, losses on operation and site closure within fiscal 2006 and comparable amounts from prior years have been segregated within the results shown for all respective years’ consolidated statements of operations.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations from the proceeds of bank debt, private and public offerings of equity and convertible debt, cash generated from operations and lease financing of capital equipment. Historically, our principal uses of cash have been to fund our working capital needs, business acquisitions, expanded operations, capital expenditures and debt service requirements. We anticipate these uses will continue to be our principal uses of cash in the future.

Net cash (used in) provided by operating activities from continuing operations for fiscal 2006, 2005, and 2004 was ($9.1) million, $28.1 million, and ($10.3) million, respectively. The cash used by operating activities for fiscal 2006 was due to increased account receivables of $21.2 million in fiscal 2006, primarily driven by the impact of the turnkey sales, offset by a $13.6 million decrease in inventories. The net loss from continuing operations for fiscal 2006 was ($20.9) million. Depreciation expense was $16.9 million for fiscal 2006. The cash cycle consisting of days sales outstanding and days inventories held less days of open payables, improved to 40 days in fiscal 2006 compared to 51 days in fiscal 2005. Customer accounts receivable and inventory held are believed to be recoverable based upon the ongoing review of customer credit worthiness, the strength of customer contracts and our review of our own operating business practices. Fiscal 2005 net cash provided by operating activities resulted primarily from $20.8 million in lower accounts receivable, and $14.8 million of lower inventory levels, offset by changes in accounts payable/prepaids, which used $7.2 million. Depreciation was $21.4 million in fiscal 2005 and the net loss from continuing operations was ($24.0) million. The cash cycle lengthened to 51 days in fiscal 2005 from 47 days in fiscal 2004. In fiscal 2004, the net cash used in operating activities was driven by increased inventories of $17.1 million, increased accounts receivable of $10.0 million and decreased accounts payable of $10.2 million.

Net cash used in investing activities for continuing operations for fiscal 2006, 2005, and 2004 was $2.7 million, $8.1 million, and $21.1 million, respectively. Capital expenditures in fiscal 2006 were $5.1 million or a decrease of $5.6 million as compared to the prior fiscal year. Capital expenditures were principally used for expanding Asian and European operations, including $1.1 million in our China facility. These capital expenditures were offset by the proceeds from sales of property, plant and equipment. In fiscal 2005, capital expenditures were principally used for expanding Asia operations, including $5.7 million in our China facility. In fiscal 2004, our cash used in investing activities included $4.2 million used to pay additional purchase price for Pacific Consultants LLC, completing payment of all conditional obligations in this agreement. Capital expenditures were $21.3 million in fiscal 2004. Capital expenditures were principally used for expansion of our China facility accounting for $14.6 million. In fiscal 2003, our cash used in investing activities included $4.4 million used to pay final purchase price for Pacific Consultants LLC, due after the first anniversary of the purchase.

25

Net cash provided by (used in) financing activities for fiscal 2006, 2005, and 2004 was $2.7 million, $(0.6) million, and $18.7 million, respectively. In fiscal 2006, our primary cash flow came from lowered bank overdraft amounts offset by debt placement costs. Our principal use of cash in financing activities in fiscal 2005 was due to slightly greater pay down of borrowings compared to borrowings advanced. Our principal provider of cash in financing activities in fiscal 2004 was $20.0 million from stock sales, during the second quarter of fiscal 2004, when Pemstar completed an offering of 7.5 million shares of its common stock.

As of March 31, 2006, we had total borrowings of $100.1 million, made up of $80.9 million of revolving credit facilities, debt obligations totaling $7.1 million and capital lease obligations of $12.1 million. See Notes 6 and 10 to our consolidated financial statements.

Within the revolving credit facilities, we had approximately $23.6 million outstanding under our domestic credit facilities, $37.4 million outstanding under our China credit facilities, $16.0 million under our Krung Thai Bank facility, and $3.9 million outstanding under local facilities in Europe and Asia. Liquidity, which is defined as worldwide cash plus available domestic borrowing capacity, was $33.3 million.

As of April 25, 2003, Pemstar entered into a three-year, $90 million revolving credit facility to replace its facility with IBM Credit and US Bank. This facility, as amended, is with Wachovia Capital Finance Corporation. This bank agreement initially provided a larger facility with generally more favorable terms. The bank agreement has been amended several times through fiscal 2006 to provide more favorable interest rates, to reduce the available credit to $55.5 million, to allow a new lending participant providing scheduled debt within this agreement and to extend the expiration of the domestic credit limit agreement to October 2009.

At March 31, 2004, Pemstar entered an agreement with Krung Thai Bank Public Company Limited, which included $15.9 million of revolving credit collateralized by customer purchase orders and other debt obligations of up to $7.7 million. In China, PEMSTAR maintains relationships with several banks, which provide for $40.0 million of facilities available for short term financing notes, which are renewable. Banking arrangements in Singapore and The Netherlands provide an additional $18.0 million of available funding on a short-term basis with renewable terms.

All of these credit facilities are secured by substantially all of our assets. Domestic credit facilities include a covenant to attain minimum earnings before interest expense, income taxes, depreciation and amortization (EBITDA), for domestic and worldwide operations As of March 31, 2006, we had $15.4 million of available domestic borrowing capacity. We are required under certain foreign credit facilities to meet various financial covenants, including minimum location net worth, maximum debt to equity ratios, and minimum location net income, all of which we were in compliance with at March 31, 2006.

Our continued viability depends on our ability to generate sufficient cash from operations or obtain additional sources of funds for working capital. Our ability to maintain sufficient liquidity depends, in part, on our achieving anticipated revenue targets, improving working capital management and realizing intended expense reductions from our restructuring activities. We believe, based on the restructuring actions taken in fiscal 2006, 2005 and 2004 to reduce cash expenditures, efforts to increase revenues from continuing customers and generate new customers in various industry sectors, our continued focus on working capital management, and the borrowing capacity provided by our revolving credit facilities, that we have sufficient cash flow to meet our needs for fiscal 2007. We may not achieve these targets, realize the intended expense reductions or improve working capital levels. If our operating goals are not met, we may be required to secure waivers of any resulting covenant violations under existing lending facilities, secure additional financing from lenders or sell additional securities.

We regularly review acquisition and additional facilities expansion or joint venture opportunities, as well as major new program opportunities with new or existing customers, any of which may require us to sell additional equity or secure additional financing in order to fund the requirement. The sale of additional equity could result in additional dilution to our shareholders. We cannot provide assurance that financing arrangements will be available in amounts or on terms acceptable to us.

26

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The Company is obligated to make future payments under various contracts, such as debt agreements, lease agreements, and unconditional purchase obligations. The following table represents contractual cash obligations and other commercial commitments of the Company as of March 31, 2006:

(Amounts in thousands)	Total		Due in Fiscal 2007		Due in Fiscal 2008		Due in Fiscal 2009		Due in Fiscal 2010		Due in Fiscal 2011		Due Thereafter
Revolving credit facilities	$	80,934	$	74,184	$	3,000	$	3,000	$	750	$	—	$	—
Other long-term debt		7,016		1,799		4,973		61		10		10		163
Capital lease obligations		23,964		1,786		1,456		1,416		1,442		1,468		20,084
Operating leases		23,414		6,596		4,982		4,383		3,861		1,968		1,624
Unconditional purchase obligations		42,826		42,763		50		13		—		—		—
Total contractual cash obligations	$	178,154	$	127,128	$	14,461	$	8,873	$	6,063	$	3,446	$	21,871

Domestic revolving credit facilities of $13,823 included above will not require repayment on a current basis, provided that credit facility covenants continue to be met. See Notes 6 and 10 to the Consolidated Financial Statements for additional information regarding these obligations.

OFF-BALANCE SHEET ARRANGEMENTS

(Amounts in thousands)	Committed Total Amounts		Amount of commitment expiration
			1 year		2 years		3 years		4 years		5 years		Over 5 years
Standby letters of credit	$	2,595	$	2,595	$	—	$	—	$	—	$	—	$	—

The outstanding standby letters of credit are in support of our domestic workers compensation program and for inventory purchases. There are no additional off-balance sheet financing arrangements employed during fiscal 2006, 2005 and 2004.

CRITICAL ACCOUNTING POLICIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and adjustments, including those related to returns, bad debts, inventories, intangible assets, income taxes, restructuring costs, retirement benefits, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Bad Debts - The Company has a diverse customer base. The creditworthiness of customers is evaluated before sales are approved. The Company records an allowance for doubtful accounts based on past history, current economic conditions and the composition of its accounts receivable aging, and in some instances, makes allowances for specific customers based on several factors, such as the creditworthiness of those customers and payment history. Actual write-offs may differ from the allowances for doubtful accounts, and this difference may have a material effect on the Company’s financial position and results of operations.

Inventories - We value our inventories on a first-in, first-out basis at the lower of cost or estimated market value. Given the volatility of the markets in which the Company operates, the Company makes adjustments to its value of inventories based on estimates of potentially excess and obsolete inventory after considering customer forecasted demand, forecasted average selling price and its ability to sell excess inventory quantities back to its customers within contract terms. However, forecasts are subject to revisions, cancellations, and rescheduling. Actual demand will inevitably differ from such anticipated demand, and such differences may have a material effect on the Company’s financial position and results of operations, if additional write-offs are required.

Goodwill and Intangible Impairment -The Company follows Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets”. Under this standard, goodwill and other intangible assets with indefinite lives are not amortized. This standard also requires, at a minimum, that we perform an annual assessment of the carrying

27

value of these assets. If the carrying value of goodwill and intangible assets exceeds its fair value, an impairment loss will be recognized. See Note 1 to the Consolidated Financial Statements, include herein. In assessing the recoverability of our goodwill and other intangible assets we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. These cash flow estimates take into account current customer volumes and the expectation of new or renewal projects, historic gross margins, historic working capital parameters and planned capital expenditures. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets not previously recorded.

Long-lived assets – We review our long-lived assets for impairment whenever events or changes in circumstances indicate that our carrying value of long-lived may not be recoverable. Long-lived assets are considered not recoverable when the carrying amount of a long-lived asset (asset group) exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). If we determine that a long-lived asset (asset group) is not recoverable, an impairment loss is recorded equal to the excess of the carrying amount of the long-lived asset (asset group) over the long-lived asset’s (asset group’s) fair value. Fair value is the amount at which the long-lived asset (asset group) could be bought or sold in a current transaction between a willing buyer and seller, other than in a forced or liquidation sale.

Income Taxes - In determining the carrying value of our net deferred tax assets, we must assess the likelihood of sufficient future taxable income in related tax jurisdictions, based on estimates and assumptions to realize the benefit of these assets. If these estimates and related assumptions change in the future, we may be required to record additional valuation allowances against our deferred tax assets, resulting in additional income tax expense in our consolidated statement of operations. Management evaluates quarterly whether the deferred tax assets may be realized and assesses the need for additional valuation allowances or reduction of existing allowances quarterly. We recorded $8.9 million and $5.4 million of additional valuation allowances in the years ended March 31, 2006 and 2005, respectively, related to our net deferred tax assets, bringing the total allowance to $63.0 million as of March 31, 2006.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued a revision to SFAS No. 123 (revised 2004), Share-Based Payment. SFAS No. 123(R) will, with certain exceptions, require entities that grant stock options and shares to employees to recognize the fair value of those options and shares as compensation cost over the service (vesting) period in their financial statements. The measurement of that cost will be based on the fair value of the equity or liability instruments issued. SFAS No. 123(R) is required to be adopted by the Company in the first interim period of our fiscal year 2007. As part of this adoption, the Company will begin expensing its options effective April 1, 2006 and has also elected to not restate prior period results. The Company does not believe that the adoption of the provisions of SFAS No. 123(R) will have a material impact on the Company’s consolidated financial statements.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29. The guidance in APB No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in APB No. 29, however, included certain exceptions to that principle. SFAS No. 153 amends APB No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. The provision of SFAS No. 153 is effective in periods beginning after June 15, 2005. The adoption of the provisions of SFAS No. 153 will not have a material impact on the Company’s consolidated financial statements.

In December 2004, the FASB issued FASB Staff Position (FSP) No. 109-1 (FAS No. 109-1), Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004. The American Jobs Creation Act (AJCA) introduces a special 9% tax deduction on qualified production activities. FAS No. 109-1 clarifies that this tax deduction should be accounted for as a special tax deduction in accordance with SFAS No. 109. The Company’s adoption of these new tax provisions had no material impact on its consolidated financial position, results of operations or cash flows.

In December 2004, the FASB issued FASB Staff Position No. 109-2 (FAS No. 109-2), Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creations Act of 2004. The AJCA introduces a limited time 85% dividends received deduction on the repatriation of certain foreign earnings to a United States taxpayer (repatriation provision), provided certain criteria are met. FAS No. 109-2 provides accounting and disclosure guidance for the repatriation provision. The Company made no dividends under the repatriation provision of the Act and the adoption of this FSP had no material impact on its consolidated financial position, results of operations or cash flows.

28

In November 2005, the FASB issued FASB Staff Position FAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The guidance in this FSP addresses the determination of when an investment is considered impaired, whether that impairment is other-than-temporary, and the measurement of an impairment loss. The FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities. The guidance in this FSP nullifies certain requirements of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, and supersedes EITF Abstracts, Topic D-44, Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value. The guidance in this FSP is required to be applied to reporting periods beginning after December 15, 2005. The Company will adopt this Staff Position during fiscal year 2007 and does not believe it will not have a material impact on its consolidated financial statements.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. This new standard replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements. Among other changes, SFAS No. 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS No. 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a restatement. The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The Company will adopt the provisions of SFAS No. 154 in fiscal 2007 and does not believe it will not have a material impact on the Company’s consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to interest rate risk arises principally from the variable rates associated with our borrowings. On March 31, 2006, we had total borrowings of $83.1 million bearing variable interest rates. An adverse change of one percent in the interest rate of all borrowings, which bear interest at variable rates, would cause us to incur a change in interest expense of approximately $0.8 million on an annual basis.

Foreign Currency Exchange Risk

Fluctuations in the rate of exchange between the U.S. dollar and the currencies of countries other than the U.S. in which we conduct business could adversely affect our financial results. Except for sales in the Netherlands, Ireland, Israel, Romania and China, our sales are principally denominated in U.S. dollars. As a result, we have relatively limited exposure to foreign currency exchange risk on our sales. For fiscal 2006, sales denominated in Euros totaled $59.3 million and sales denominated in Chinese Renminbi totaled $355.2 million. Costs related to these sales are largely denominated in their respective currencies, thereby limiting our transaction risk exposures. However, for sales not denominated in U.S. dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases, and if we price our products and services in the foreign currency, we will receive less in U.S. dollars than we did before the rate increase went into effect. If we price our products and services in U.S. dollars and competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could result in our prices being uncompetitive in a market where business is transacted in the local currency.

The reported results of our foreign operations will be influenced during their translation into U.S. dollars by currency movements against the U.S. dollar. The result of a uniform 10% strengthening in the value of the U.S. dollar from March 31, 2006, 2005 and 2004 levels relative to each of the currencies in which our revenues and expenses are denominated would have resulted in a decrease in operating income of approximately $0.7 million, $0.2 million and $1.3 million, respectively, for the fiscal years ended March 31, 2006, 2005 and 2004.

At March 31, 2006 and 2005, the amount we consider permanently invested in foreign subsidiaries and translated into dollars using the year end exchange rate was $46.1 million and $46.6 million, respectively, and the potential loss in fair value resulting from a hypothetical 10% strengthening in the value of the U.S. dollar currency exchange rate amounts to $4.2 million and $4.2 million, respectively. Actual amounts may differ.

29

We currently do not hedge our exposure to foreign currency exchange rate fluctuations; however, we may hedge such exposures in the future.

Impact of Inflation

We believe that our results of operations are not dependent upon moderate changes in the inflation rate.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item concerning financial statements and supplementary financial information are listed under Item 15 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-K. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, our disclosure controls and procedures were effective as of March 31, 2006.

Disclosure controls and procedures are defined by Rule 13a - 15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) as controls and other procedures that are designed to ensure that information required to be disclosed by us in reports filed with or submitted to the Securities and Exchange Commission (“SEC”) under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control

During the 2006 fourth fiscal quarter, the Company completed its remediation efforts to address the material weaknesses noted in its Annual Report on Form 10-K for the year ended March 31, 2005. Final elements completed in the quarter included the strengthening of balance sheet reconciliation review processes and control owners’ self assessment compliance.

Except as described above, there were no changes in our internal control over financial reporting that occurred during the fourth quarter of fiscal 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None

30

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item regarding directors and Section 16(a) compliance is incorporated by reference from the information under the caption “Election of Directors” contained in the Proxy Statement and the information under the caption “Section 16 Beneficial Ownership Reporting Compliance” contained in the Proxy Statement, respectively. The information required by this item regarding the Company’s code of ethics is incorporated by reference from the information under the caption “Code of Ethics” contained in the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item regarding executive officers’ compensation is incorporated by reference from the information under the caption “Executive Compensation” contained in the Proxy Statement, but excluding the 2006 Compensation Committee Report on Executive Compensation. The information required by the item regarding director compensation is incorporated by reference from the information under the caption “Compensation of Directors” contained in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference from the information under the caption “Security Ownership of Certain Beneficial Owners and Management” contained in the Proxy Statement. The information required by this item regarding securities authorized for issuance under equity compensation plans is incorporated by reference from the information under the caption “Equity Compensation Plan Information” contained in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item regarding accounting fees and services is incorporated by reference from the information under the caption “Independent Registered Public Accounting Firm Fees” contained in the Proxy Statement.

31

PART IV.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1)	Financial Statements
	The following consolidated financial statements of Pemstar Inc. and subsidiaries and the Independent Auditors’ Report thereon, are included in Part II, Item 8, hereof:
			Form 10-K Page Reference
		Reports of Independent Registered Public Accounting Firms	F-1 and F-2
		Consolidated Balance Sheets — March 31, 2006 and March 31, 2005	F-3
		Consolidated Statements of Operations — Years ended March 31, 2006, March 31, 2005 and March 31, 2004	F-4
		Consolidated Statement of Shareholders’ Equity — Years ended March 31, 2006, March 31, 2005 and March 31, 2004	F-5
		Consolidated Statements of Cash Flows — Years ended March 31, 2006, March 31, 2005 and March 31, 2004	F-6
		Notes to Consolidated Financial Statements	F-7
(a)(2)	Financial Statement Schedules
	The consolidated financial statement schedule of Pemstar Inc. and subsidiaries, required to be filed as part of this Form 10-K is listed below and is included at the end of this Report.
			Form 10-K Page Reference
		Schedule II – Valuation and Qualifying Accounts – Years ended March 31, 2006, March 31, 2005 and March 31, 2004	F-22
	All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
(a)(3)	Exhibits
	See “Exhibit Index” on the page following the Signature Page.
The Company agrees to furnish supplementally to the Securities and Exchange Commission upon request a copy of any instrument defining the rights of holders of long-term debt not being filed as an exhibit in reliance on Item 601(b)(4)(iii)(A) of Regulation S-K.
(b)	Exhibits
	See Exhibit Index and Exhibits attached to this Report.
(c)	Financial Statement Schedules
	See Financial Statement Schedule included at the end of this Report on page F-22.

32

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Rochester, State of Minnesota.

	PEMSTAR INC.
Date: June 22, 2006	By:	/s/ Allen J. Berning
		Allen J. Berning Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated. KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bruce J. Borgerding and Greg S. Lea, and each of them, as their true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign the Annual Report on Form 10-K of Pemstar Inc. for the 12 months ended March 31, 2006 and any and all amendments to such Annual Report on Form 10-K and to file same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or the substitutes for such attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof.

Signature	Title	Date
/s/ Allen J. Berning Allen J. Berning	Chairman, Chief Executive Officer and Director (principal executive officer)	June 22, 2006
/s/ Roy A. Bauer Roy A. Bauer	President, Chief Operating Officer and Director	June 22, 2006
/s/ Greg S. Lea Greg S. Lea	Chief Financial Officer and Director (principal financial officer)	June 22, 2006
/s/ Thomas A. Burton Thomas A. Burton	Director	June 22, 2006
Claire Bender	Director
/s/ Bruce M. Jaffe Bruce M. Jaffe	Director	June 22, 2006
/s/ Wolf Michel Wolf Michel	Director	June 22, 2006
/s/ Michael Odrich Michael Odrich	Director	June 22, 2006
/s/ Steven E. Snyder Steven E. Snyder	Director	June 22, 2006
/s/ Larry R. Degen Larry R. Degen	Vice President, Principal Accounting Officer (principal accounting officer)	June 22, 2006

33

EXHIBIT INDEX

Exhibit No.
3.1	Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-3 (File No. 333-75284)).
3.2	Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No. 333-37162)).
4.1	Form of Certificate of Common Stock of the Company (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File No. 333-37162)).
4.2	Rights Agreement, dated as of August 11, 2000, between the Company and Wells Fargo Bank, N.A., as Rights Agent (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-3 (File No. 333- 75284)).
4.3	Amended and Restated Rights Agreement Amendment by and between the Company and Wells Fargo Bank Minnesota, N.A. dated May 8, 2002 (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form 8-A/A filed on July 29, 2002).
4.4	Form of Indenture relating to Senior Debt Securities (incorporated by reference to Exhibit 4.7 to the Company’s Registration Statement on Form S-3 (File No. 333-75284)).
4.5	Form of Indenture relating to Subordinated Debt Securities (incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-3 (File No. 333-75284)).
4.6	Form of Initial Notes (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 6, 2002).
4.7	Form of Warrants (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on May 6, 2002).
4.8	Warrant dated May 10, 2002 to Smithfield Fiduciary LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 13, 2002).
4.9	Warrant dated May 10, 2002 to Citadel Equity Fund Ltd. (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on May 13, 2002).
10.1	Purchase Agreement by and among the Company, Smithfield Fiduciary LLC and Citadel Equity Fund Ltd. dated May 3, 2002 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 6, 2002).
10.2	Registration Rights Agreement by and among the Company, Smithfield Fiduciary LLC and Citadel Equity Fund Ltd. dated May 3, 2002 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 6, 2002).
10.3	Registration Rights Agreement by and among the Company, Smithfield Fiduciary LLC and Citadel Equity Fund Ltd. dated May 10, 2002 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 13, 2002).
10.4	Letter Agreement by and among the Company, Smithfield Fiduciary LLC and Citadel Equity Fund Ltd. dated May 8, 2002 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 13, 2002).
10.5	Letter Agreement by and among the Company, Smithfield Fiduciary LLC and Citadel Equity Fund Ltd. dated May 10, 2002 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on May 13, 2002).
10.6	Amendment and Termination Agreement by and among the Company, Smithfield Fiduciary LLC and Citadel Equity Fund Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 19, 2002).
10.7	Form of Change in Control Agreement.
10.8*	Pemstar Inc. 1994 Stock Option Plan (incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1 (File No. 333-37162)).
10.9*	Pemstar Inc. 1995 Stock Option Plan (incorporated by reference to Exhibit 10.13 to the Company’s Registration Statement on Form S-1 (File No. 333-37162)).
10.10*	Pemstar Inc. 1997 Stock Option Plan (incorporated by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S-1 (File No. 333-37162)).

34

10.11*	Pemstar Inc. Amended and Restated 1999 Stock Option Plan (incorporated by reference to Exhibit 10.15 to the Company’s Registration Statement on Form S-1 (File No. 333-37162)).
10.12*	Pemstar Inc. 2000 Stock Option Plan (incorporated by reference to Exhibit 10.16 to the Company’s Registration Statement on Form S-1 (File No. 333-37162)).
10.13*	Pemstar Inc. 2000 Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 10.6 in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002).
10.14*	Pemstar Inc. 2002 Stock Option Plan (incorporated by reference to Exhibit 10.7 in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002).
10.15*	Form of agreement—Pemstar Inc. Incentive Stock Option Agreement used for granting options to executive officers under the Pemstar Inc. 1994 Stock Option Plan, the Pemstar Inc. 1995 Stock Option Plan, the Pemstar Inc. 1997 Stock Option Plan, the Pemstar Inc. Amended and Restated 1999 Stock Option Plan, the Pemstar Inc. 2000 Stock Option Plan and the Pemstar Inc. 2002 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 1, 2005) (File No. 000-31223)).
10.16*	Form of agreement—Pemstar Inc. Non-Qualified Stock Option Agreement used for granting options to executive officers under the Pemstar Inc. 1994 Stock Option Plan, the Pemstar Inc. 1995 Stock Option Plan, the Pemstar Inc. 1997 Stock Option Plan, the Pemstar Inc. Amended and Restated 1999 Stock Option Plan, the Pemstar Inc. 2000 Stock Option Plan, and the Pemstar Inc. 2002 Stock Option Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 1, 2005) (File No. 000-31223)).
10.17	Sub-Lease Agreement, dated February 3, 1999, between Hongguan Technologies (S) Pte. Ltd. and Pemstar-Hongguan Pte. Ltd. (incorporated by reference to Exhibit 10.20 to the Company’s Registration Statement on Form S-1 (File No. 333-37162)).
10.18	Sublease for Office Premises, dated May 1, 1999, between Pemstar B.V. and Fluke Industrial B.V. and Lease Agreement for Office Premises dated July 11, 1997 between Fortress Beheer I B.V. & Garden End Building B.V. and Fluke Industrial B.V. (incorporated by reference to Exhibit 10.22 to the Company’s Registration Statement on Form S-1 (File No. 333-37162)).
10.19	Sublease Assignment Agreement dated June 8, 1999 between the Company and Bell Microproducts, Inc. (incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement on Form S-1 (File No. 333-37162)).
10.20	Land and Factory Lease Agreement dated April 27, 2000 between the Company and Thai Factory Development Public Company Limited (incorporated by reference to Exhibit 10(ii) to the Company’s Quarterly Report on Form 10-Q for the period ending September 30, 2000 (File No. 000-31223)).
10.21	Lease Agreement, dated April 22, 1981, between the City of Dunseith, North Dakota and Turtle Mountain Corporation (incorporated by reference to Exhibit 10.37 to the Company’s Registration Statement on Form S-1 (File No. 333-60832)).
10.22	Lease Agreement dated April 30, 2001, between the Company and James F. Matthews and Judith Matthews (incorporated by reference to Exhibit 10.33 to the Company’s Registration Statement on Form S-1 (File No. 333-60832)).
10.23	Lease Agreement, dated 5 April 2001, between Derraglen Trading Limited, Pemstar Ireland Limited and the Company (incorporated by reference to Exhibit 10(iii) to the Company’s Quarterly Report on Form 10-Q for the period ending June 30, 2001 (File No. 000-31223)).
10.24	Loan and Security Agreement between the Company, Turtle Mountain Corporation, Pemstar Pacific Consultants Inc. and Gentlelife, Inc., Congress Financial Corporation and Fleet Capital Corporation dated April 25, 2003 (incorporate by reference to Exhibit 4.1 to the Company’s Report on Form 8-K dated April 28, 2003 (File No. 000-31223))
10.25	Amendment No. 1 to Loan and Security Agreement, dated as of April 25, 2003, between the Company, Turtle Mountain Corporation, Pemstar Pacific Consultants Inc. and Gentlelife, Inc., Congress Financial Corporation and Fleet Capital Corporation dated April 25, 2003 (incorporated by reference to Exhibit 4.2 to the Company’s Report on Form 8-K dated April 28, 2003 (File No. 000-31223)).
10.26	Amendment No. 2 to Loan and Security Agreement, dated as of June 30, 2003, between the Company, Turtle Mountain Corporation, Pemstar Pacific Consultants Inc. and Gentlelife, Inc., Congress Financial Corporation and Fleet Capital Corporation dated April 25, 2003 (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 10-Q dated August 7, 2003 (File No. 000-31223)).

35

10.27	Amendment No. 3 to Loan and Security Agreement, dated as of July 10, 2003, between the Company, Turtle Mountain Corporation, Pemstar Pacific Consultants Inc. and Gentlelife, Inc., Congress Financial Corporation and Fleet Capital Corporation dated April 25, 2003 (incorporated by reference to Exhibit 4.2 to the Company’s Report on Form 10-Q dated August 7, 2003 (File No. 000-31223)).
10.28	Amendment No. 4 to Loan and Security Agreement, dated as of January 5, 2004, between the Company, Turtle Mountain Corporation, Pemstar Pacific Consultants Inc. and Gentlelife, Inc., Congress Financial Corporation and Fleet Capital Corporation dated April 25, 2003 (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 10-Q dated January 9, 2004 (File No. 000-31223)).
10.29	Amendment No. 5 to Loan and Security Agreement, dated as of January 6, 2004, between the Company, Turtle Mountain Corporation, Pemstar Pacific Consultants Inc. and Gentlelife, Inc., Congress Financial Corporation and Fleet Capital Corporation dated April 25, 2003 (incorporated by reference to Exhibit 10.2 to the Company’s Report on Form 8-K dated January 9, 2004 (File No. 000-31223)).
10.30	Amendment No. 6 to Loan and Security Agreement, dated as of January 6, 2004, between the Company, Turtle Mountain Corporation, Pemstar Pacific Consultants Inc. and Gentlelife, Inc., Congress Financial Corporation and Fleet Capital Corporation dated April 25, 2003 (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 10-Q dated February 17, 2004 (File No. 000-31223)).
10.31	Amendment No. 7 to Loan and Security Agreement, dated as of April 12, 2004, between the Company, Turtle Mountain Corporation, Pemstar Pacific Consultants Inc. and Gentlelife, Inc., Congress Financial Corporation and Fleet Capital Corporation dated April 25, 2003 (incorporated by reference to Exhibit 10.38 to the Company’s Report on Form 10-K dated June 11, 2004 (File No. 000-31223)).
10.32	Amendment No. 8, dated as of June 4, 2004, to Loan and Security Agreement dated April 25, 2003 by and among the Company, Turtle Mountain Corporation, Pemstar Pacific Consultants Inc., Gentlelife, Inc., Congress Financial Corporation and Fleet Capital Corporation. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for quarter ended June 30, 2004 (File No. 000-31223)).
10.33	Amendment No. 9, dated as of September 20, 2004, to Loan and Security Agreement dated April 25, 2003 by and among the Company, Turtle Mountain Corporation, Pemstar Pacific Consultants Inc., Gentlelife, Inc., Congress Financial Corporation and Fleet Capital Corporation (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on October 6, 2004) (File No. 000-31223)).
10.34	Amendment No. 10, dated as of September 30, 2004, to Loan and Security Agreement dated April 25, 2003 by and among the Company, Turtle Mountain Corporation, Pemstar Pacific Consultants Inc., Gentlelife, Inc., Congress Financial Corporation and Fleet Capital Corporation (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on October 6, 2004) (File No. 000-31223)).
10.35	Amendment No. 11, dated as of December 31, 2004, to Loan and Security Agreement dated April 25, 2003 by and among the Company, Turtle Mountain Corporation, Pemstar Pacific Consultants Inc., Gentlelife, Inc., Congress Financial Corporation and Fleet Capital Corporation (incorporated by reference to Exhibit 10.45 to the Company’s Report on Form 10-K dated June 14, 2005 (File No. 000-31223)).
10.36	Amendment No. 12, dated as of January 3, 2005, to Loan and Security Agreement dated April 25, 2003 by and among the Company, Turtle Mountain Corporation, Pemstar Pacific Consultants Inc., Gentlelife, Inc., Congress Financial Corporation and Fleet Capital Corporation (incorporated by reference to Exhibit 10.46 to the Company’s Report on Form 10-K dated June 14, 2005 (File No. 000-31223)).
10.37	Amendment No. 13, dated as of June 27, 2005, to Loan and Security Agreement dated April 25, 2003 by and among the Company (as surviving corporation of the merger with Turtle Mountain Corporation, Pemstar Pacific Consultants Inc., and Gentlelife, Inc.), Wachovia Capital Finance Corporation (Central) formerly known as Congress Financial Corporation (Central) and Fleet Capital Corporation (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on August 5, 2005) (File No. 000-31223)).
10.38	Amendment No. 14, dated as of June 27, 2005, to Loan and Security Agreement dated April 25, 2003 by and among the Company (as surviving corporation of the merger with Turtle Mountain Corporation, Pemstar Pacific Consultants Inc., and Gentlelife, Inc.), Wachovia Capital Finance Corporation (Central) formerly known as Congress Financial Corporation (Central) and Fleet Capital Corporation (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on August 5, 2005) (File No. 000-31223)).
10.39	Amendment No. 15, dated as of June 27, 2005, to Loan and Security Agreement dated April 25, 2003 by and among the Company (as surviving corporation of the merger with Turtle Mountain Corporation, Pemstar Pacific Consultants Inc., and Gentlelife, Inc.), Wachovia Capital Finance Corporation (Central) formerly known as Congress Financial Corporation (Central) and Fleet Capital Corporation (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on August 5, 2005) (File No. 000-31223)).

36

10.40	Amendment No. 16, dated as of October 20, 2005, to Loan and Security Agreement dated April 25, 2003 by and among the Company (as surviving corporation of the merger with Turtle Mountain Corporation, Pemstar Pacific Consultants Inc., and Gentlelife, Inc.), Wachovia Capital Finance Corporation (Central) formerly known as Congress Financial Corporation (Central) and Bank of America, N.A. (as successor –in-interest to Fleet Capital Corporation) (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on October 20, 2005) (File No. 000-31223)).
10.41	Krung Thai Bank Public Company Limited agreements for credit facilities and other services to Pemstar (Thailand) Co., Ltd. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for quarter ended June 30, 2004 (File No. 000-31223)).
10.42	Credit Agreement between Pemstar B.V. and ABN AMRO Bank N.V. dated September 28, 2004 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2004) (File No. 000-31223)).
10.43	Lease agreement between Company and PEM (MN) QRS 15-39, INC., a Delaware corporation, dated March 28, 2003 (incorporated by reference to Exhibit 4.3 to the Company’s Report on Form 8-K dated April 28, 2003 (File No. 000-31223)).
10.44	English Language Summary of Lease agreement between Shenzhen Yu Can Enterprise Co., Ltd. and Pemstar Netherlands Holding B.V. dated March 7, 2006(1).
10.45	Shenzhen Development Bank Co., Ltd. agreement for credit facility to Pemstar (Tianjin) Enterprise Company Ltd.
10.46	Shenzhen Development Bank Co., Ltd. agreement for credit facility to Pemstar (Tianjin) Enterprise Company Ltd.
10.47	Industrial Bank Co., Ltd. agreement for credit facility to Pemstar (Tianjin) Enterprise Company Ltd.
10.48	Industrial Bank Co., Ltd. agreement for credit facility to Pemstar (Tianjin) Enterprise Company Ltd.
10.49	Industrial Bank Co., Ltd. agreement for credit facility to Pemstar (Tianjin) Enterprise Company Ltd.
10.50	Bank of Communications agreement for credit facility to Pemstar (Tianjin) Enterprise Company Ltd.
10.51	Bank of Communications agreement for credit facility to Pemstar (Tianjin) Enterprise Company Ltd.
10.52	Bank of Communications agreement for credit facility to Pemstar (Tianjin) Enterprise Company Ltd.
10.53	China Minsheng Banking Corp., Ltd. agreement for credit facility to Pemstar (Tianjin) Enterprise Company Ltd.
12.1	Computation of Ratio of Earnings to Fixed Charges.
21.1	Subsidiaries of the Company.
23.1	Consent of Grant Thornton LLP.
23.2	Consent of Ernst & Young LLP.
24.1	Power of Attorney (included with signatures on page 33, herein).
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Management contract or compensatory plan or arrangement required to be filed as an exhibit to Form 10-K pursuant to Item 15(b) of this Report

⁽¹⁾ Copy of original Chinese language document will be provided to the Commission upon request.

Pemstar will furnish a copy of any exhibit upon a shareholder’s request and payment of reasonable expenses associated with furnishing the exhibit. Shareholders should submit requests to the attention of Bruce Borgerding, Pemstar Inc., 3535 Technology Drive NW, Rochester, MN 55901.

37

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

PEMSTAR Inc.

We have audited the accompanying consolidated balance sheets of Pemstar Inc. as of March 31, 2006 and March 31, 2005, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the two years in the period ended March 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above, present fairly, in all material respects, the consolidated financial position of Pemstar Inc. as of March 31, 2006 and March 31, 2005, and the consolidated results of their operations and their consolidated cash flows for each of the two years in the period ended March 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying Schedule II is presented to comply with SEC reporting requirements and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

/s/ Grant Thornton LLP

Minneapolis, Minnesota

May 18, 2006

F - 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

PEMSTAR Inc.

We have audited the accompanying consolidated statements of operations, shareholders’ equity, and cash flows of Pemstar Inc. for the year ended March 31, 2004. Our audit also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Pemstar Inc. for the year ended March 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets,” in 2003.

/s/ Ernst & Young LLP

Minneapolis, Minnesota

May 7, 2004,

except for paragraph 4 in Note 1,

as to which the date is

June 20, 2006

F - 2

CONSOLIDATED BALANCE SHEETS

PEMSTAR Inc.

(In thousands, except per share data)	March 31, 2006			March 31, 2005
Assets
Current assets:
Cash and cash equivalents	$	17,903		$	25,883
Accounts receivable, net		121,107			98,759
Recoverable income taxes		222			971
Inventories		54,544			68,345
Unbilled services		6,214			8,173
Deferred income taxes		914			953
Value added tax receivable		18,799			1,976
Prepaid expenses and other		9,333			8,437
Assets related to discontinued operations		437			9,395
Total current assets		229,473			222,892
Property, plant and equipment		61,073			76,169
Goodwill, net		33,878			33,878
Deferred income taxes		3,975			2,733
Other assets		5,817			4,210
Non-current assets related to discontinued operations		16			4,112
Total assets	$	334,232		$	343,994
Liabilities and shareholders’ equity
Current liabilities:
Cash overdraft	$	4,110		$	312
Revolving credit facilities and current maturities of long-term debt		75,983			79,068
Current maturities of capital lease obligations		482			453
Accounts payable		82,325			84,375
Income taxes payable		1,497			1,491
Value added tax payable		15,626			969
Accrued expenses and other		25,589			25,032
Liabilities related to discontinued operations		1,637			5,695
Total current liabilities		207,249			197,395
Long-term debt, less current maturities		11,967			6,560
Capital lease obligations, less current maturities		11,640			11,973
Other liabilities and deferred credits		8,634			2,895
Shareholders’ equity:
Common stock, par value $0.01, 150,000 shares authorized; shares issued and outstanding; 2006 – 45,289 shares; 2005 – 45,178 shares		453			452
Additional paid-in capital		255,165			255,067
Accumulated other comprehensive income		1,226			3,601
Accumulated deficit		(162,102	)		(133,949	)
Total shareholders’ equity		94,742			125,171
Total liabilities and shareholders’ equity	$	334,232		$	343,994

See notes to consolidated financial statements.

F - 3

CONSOLIDATED STATEMENTS OF OPERATIONS

PEMSTAR Inc.

(In thousands, except per share data)	Year Ended March 31,
	2006			2005			2004
Net sales	$	871,018		$	659,651		$	629,830
Costs of goods sold		828,970			616,241			580,603
Gross profit		42,048			43,410			49,227
Selling, general and administrative expenses		43,741			56,673			49,729
Restructuring costs		10,462			4,956			7,876
Amortization		45			219			106
Operating loss		(12,200	)		(18,438	)		(8,484	)
Other expense (income) – net		47			(738	)		(352	)
Interest expense		9,587			8,162			7,831
Loss from continuing operations before income taxes		(21,834	)		(25,862	)		(15,963	)
Income tax (benefit)		(965	)		(1,825	)		(196	)
Loss from continuing operations		(20,869	)		(24,037	)		(15,767	)
Loss from discontinued operations		(7,284	)		(9,700	)		(9,517	)
Net loss	$	(28,153	)	$	(33,737	)	$	(25,284	)
Basic and diluted net loss per common share:
Loss from continuing operations	$	(0.46	)	$	(0.53	)	$	(0.37	)
Loss from discontinued operations		(0.16	)		(0.22	)		(0.23	)
Net loss	$	(0.62	)	$	(0.75	)	$	(0.60	)
Average shares used in computing net loss per common share:
Basic and diluted		45,212			45,154			42,002

See notes to consolidated financial statements.

F - 4

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

PEMSTAR Inc.

					Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Loans to Shareholders			Total
	Common Stock
(In thousands)	Shares		Amount
Balance, March 31, 2003	37,486		$	375	$	234,943		$	(14	)	$	(74,928	)	$	(509	)	$	159,867
Issuance of common stock in employee stock programs	191			1		365			—			—			—			366
Payments on loans to shareholders	(16	)		—		(61	)		—			—			345			284
Issuance of common stock	7,475			75		19,906			—			—			—			19,981
Comprehensive loss:
Net loss	—			—		—			—			(25,284	)		—			(25,284	)
Foreign currency translation adjustment	—			—		—			3,095			—			—			3,095
Comprehensive loss	—			—		—			—			—			—			(22,189	)
Balance, March 31, 2004	45,136			451		255,153			3,081			(100,212	)		(164	)		158,309
Issuance of common stock in employee stock programs	87			1		(32	)		—			—			—			(31	)
Payments on loans to shareholders	(45	)		—		(54	)		—			—			164			110
Comprehensive loss:
Net loss	—			—		—			—			(33,737	)		—			(33,737	)
Foreign currency translation adjustment	—			—		—			520			—			—			520
Comprehensive loss	—			—		—			—			—			—			(33,217	)
Balance, March 31, 2005	45,178			452		255,067			3,601			(133,949	)		—			125,171
Issuance of common stock in employee stock programs	111			1		98			—			—			—			99
Comprehensive loss:
Net loss	—			—		—			—			(28,153	)		—			(28,153	)
Foreign currency translation adjustment	—			—		—			(2,375	)		—			—			(2,375	)
Comprehensive loss	—			—		—			—			—			—			(30,528	)
Balance, March 31, 2006	45,289		$	453	$	255,165		$	1,226		$	(162,102	)	$	—		$	94,742

See notes to consolidated financial statements.

F - 5

CONSOLIDATED STATEMENTS OF CASH FLOWS

PEMSTAR Inc.

(In thousands)	Year ended March 31,
	2006			2005			2004
Cash flows from operating activities:
Net loss from continuing operations	$	(20,869	)	$	(24,037	)	$	(15,767	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		16,876			21,410			21,059
Amortization		1,067			1,361			1,426
Deferred income taxes		(1,150	)		(681	)		(500	)
Non-cash restructuring charges and other		2,574			(294	)		1,201
Other deferred credits		(182	)		(174	)		(907	)
Change in operating assets and liabilities:
Accounts receivable		(21,234	)		20,824			(9,997	)
Inventories		13,602			14,760			(17,120	)
Recoverable income taxes		749			(832	)		(587	)
Unbilled services		1,960			3,213			(750	)
Prepaid expenses and other		(18,912	)		3,957			(6,248	)
Accounts payable		(3,115	)		(11,895	)		10,244
Accrued expenses and other		19,548			448			7,680
Net cash (used in) provided by operating activities from continuing operations		(9,086	)		28,060			(10,266	)
Net cash provided by (used in) discontinued operations		1,372			(2,748	)		(10,267	)
Net cash (used in) provided by operating activities		(7,714	)		25,312			(20,533	)
Cash flows used in investing activities:
Decrease (increase) in restricted cash		572			4			4,264
Business acquisitions, net of cash acquired		—			—			(4,224	)
Proceeds from sale of property, plant and equipment		1,826			2,573			204
Purchases of property, plant and equipment		(5,126	)		(10,685	)		(21,298	)
Net cash used in investing activities from continuing operations		(2,728	)		(8,108	)		(21,054	)
Net cash provided by (used in) investing activities from discontinued operations		175			(231	)		231
Net cash (used in) investing activities		(2,553	)		(8,339	)		(20,823	)
Cash flows provided by (used in) financing activities:
Bank overdrafts		3,799			(6,840	)		7,131
Proceeds from common stock sales/minority interest		241			243			19,981
Proceeds from (treasury stock loss on) employee stock programs (net)		100			(31	)		366
Payments on loans to shareholders		—			110			284
Principal payments on borrowings		(22,297	)		(14,288	)		(62,150	)
Proceeds from borrowings		22,097			20,510			54,787
Debt placement costs		(1,223	)		(346	)		(1,681	)
Net cash provided by (used in) financing activities		2,717			(642	)		18,718
Effect of exchange rate changes on cash		(430	)		(240	)		386
Net (decrease) increase in cash and cash equivalents		(7,980	)		16,091			(22,252	)
Cash and cash equivalents:
Beginning of year		25,883			9,792			32,044
End of year	$	17,903		$	25,883		$	9,792

See notes to consolidated financial statements.

F - 6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PEMSTAR Inc.

(In thousands, except per share data)

Note 1. Nature of Business and Significant Accounting Policies

Business – Pemstar Inc. (the “Company”) is a leading provider of electronics manufacturing services to original equipment manufacturers in the communications, computing and data storage, industrial and medical equipment sectors. The Company provides its services to customers on a global basis through manufacturing facilities located in North America, Asia, and Europe.

Principles of consolidation – The accompanying financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany accounts and transactions are eliminated in the consolidated financial statements.

Revenue recognition – Revenue from the sale of products is recognized when the product is shipped to the customer. In limited circumstances, although the physical product remains on the Company’s premises at the request of the customer, when title and risks and rewards of ownership have contractually passed to the customer, revenue is recognized in accordance with the guidance of Staff Accounting Bulletin No. 104. Revenue from sale of products includes sales of excess inventories to customers at cost under contract provisions totaling $9,651, $11,373 and $8,409 for the years ended March 31, 2006, 2005 and 2004, respectively. Revenue from design, development and engineering services is recognized when the services are performed and collectibility is reasonably certain. Such services provided under fixed price contracts are accounted for using the percentage of completion method as outlined in SOP 81-1, “Accounting for Performance of Contract-Type and Certain Production-Type Contracts” using hours of services for measurement of the extent of progress towards completion. Revenue recognized in excess of billed amounts under fixed price contracts or unbilled engineering services is classified as unbilled services in the balance sheet.

Classification – During fiscal 2006 the Company closed its facility in Guadalajara, Mexico. The results of operations, cashflows and assets and liabilities of the facility have been segregated as discontinued operations in these fiscal 2006 financial statements. Comparable year disclosures have been reclassified to conform to this presentation. Sales of the discontinued operations were $6,054, $30,265 and $39,617 for years ended March 31, 2006, 2005 and 2004 respectively. At March 31, 2006 remaining assets and liabilities from discontinued operations include various refundable and payable taxes and accrued expense amounts.

Cash and cash equivalents – The Company considers all highly liquid debt securities purchased with a maturity of three months or less to be cash equivalents. Cash equivalents are recorded at cost, which approximates market value. Cash and cash equivalents includes balances in foreign account totaling $17,900 and $25,883 at March 31, 2006 and 2005, respectively. Domestic cash is managed within an overdraft arrangement in conjunction with our domestic revolving credit facility.

Inventories – Inventories are stated at the lower of cost (first-in, first-out method) or market and include freight-in, materials, labor and manufacturing overhead costs.

Property, plant and equipment – Property, plant and equipment is stated at cost. Costs incurred to maintain property plant and equipment that do not comprise major improvements or extend the life of the asset are expensed as repairs and maintenance as incurred. Capital expenditures below certain policy thresholds are expensed as purchased. Depreciation is computed using the straight-line method over the following estimated useful lives:

	Number of Years
Buildings and improvements	4 to 40
Machinery and equipment	4 to 7
Furniture and fixtures	2 to 10
Computer hardware and software	4

Amortization of assets acquired under capital leases is included in depreciation expense.

Goodwill –The Company follows SFAS No. 142, “Goodwill and Other Intangible Assets.” Under this standard, goodwill and intangibles with indefinite useful lives are no longer amortized. This standard also requires, at a minimum, an annual assessment of the carrying value of goodwill and other intangibles with indefinite useful lives. If the carrying value of goodwill or an intangible asset exceeds its fair value, an impairment loss shall be recognized. Intangible assets with finite lives are amortized over their estimated useful lives.

F - 7

Long-lived assets – The Company follows SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” As such, the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that our carrying value of long-lived may not be recoverable. Long-lived assets are considered not recoverable when the carrying amount of a long-lived asset (asset group) exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). If it is determined that a long-lived asset (asset group) is not recoverable, an impairment loss is recorded equal to the excess of the carrying amount of the long-lived asset (asset group) over the long-lived asset’s (asset group’s) fair value. Fair value is the amount at which the long-lived asset (asset group) could be bought or sold in a current transaction between a willing buyer and seller, other than in a forced or liquidation sale.

Estimated warranty claim – The Company sells its products with a warranty that provides for repairs or replacements of any defective workmanship for a one-year period after the sale. Based upon historical experience, the accrual for warranty claims is not material at March 31, 2006 and 2005.

Foreign currency – For subsidiaries where the U.S. dollar is the functional currency, all foreign currency asset and liability amounts are remeasured into U.S. dollars at end-of-period exchange rates, except for inventories, prepaid expenses, property, plant and equipment, and intangible assets, which are remeasured at historical rates. Foreign currency income and expenses are remeasured at average exchange rates in effect during the year, except for expenses related to balance sheet amounts remeasured at historical exchange rates. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in (loss) income in the period in which they occur.

For subsidiaries where the local currency is the functional currency, assets and liabilities denominated in local currencies are translated into U.S. dollars at end of period exchange rates, and the resultant translation adjustments are reported, net of their related tax effects, as a component of accumulated other comprehensive (loss) income in stockholders’ equity. Assets and liabilities denominated in other than the local currency are remeasured into the local currency prior to translation into U.S. dollars, and the resultant exchange gains or losses are included in (loss) income in the period in which they occur. Income and expenses are translated into U.S. dollars at average exchange rates in effect during the period.

Comprehensive (loss) income reflects the change in equity of a business during a period from transactions and other events and circumstances from non-owner sources. For the Company, comprehensive (loss) income represents net (loss) income adjusted for foreign currency translation adjustments.

Shipping and handling fees – The Company classifies costs associated with shipping and handling fees as a component of cost of goods sold. Customer billings related to shipping and handling fees are reported as net sales.

Income taxes – The Company accounts for income taxes following the provisions of SFAS No. 109, “Accounting for Income Taxes.” SFAS No. 109 requires that deferred income taxes be recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable earnings. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized. The effect of changes in tax rates is recognized in the period in which the rate change occurs.

Research and development – Research and development costs are expensed when incurred and totaled $515, $551 and $529 for the years ended March 31, 2006, 2005, and 2004, respectively.

Use of estimates – Preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, related revenues and expenses and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from these estimates.

The Company grants credit to customers in the normal course of business. Management performs on-going credit evaluations of customers before sales are approved. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

Given the volatility of the markets in which the Company operates, the Company makes adjustments to its value of inventories based on estimates of potentially excess and obsolete inventory after considering customer forecasted demand, forecasted average selling price and its ability to sell excess inventory quantities back to its customers within contract

F - 8

terms. However, forecasts are subject to revisions, cancellations, and rescheduling. Actual demand will inevitably differ from such anticipated demand, and such differences may have a material effect on the Company’s financial position and results of operations, if additional write-offs are required.

In assessing the recoverability of our goodwill and other intangible assets we make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. These cash flow estimates take into account current customer volumes and the expectation of new or renewal projects, historic gross margins, historic working capital parameters and planned capital expenditures. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets.

Stock-based compensation – The Company has adopted the pro-forma disclosure only requirements of SFAS No. 123, “Accounting for Stock-Based Compensation”, and accordingly, accounts for stock options issued to employees using the intrinsic value method of Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees.” Compensation expense is recorded on the date stock options are granted only if the current fair market value of the underlying stock exceeds the exercise price of the option. Accordingly, no compensation cost has been recognized for grants under these stock option plans since the exercise price equaled the fair market value of the stock on the date of grant. Had compensation cost for stock option grants been based on the grant date fair values of awards (the method described in SFAS No. 123), reported net loss would have been changed to the pro forma amounts reported below.

	Year Ended March 31,
	2006			2005			2004
Net loss from continuing operations:
As reported	$	(20,869	)	$	(24,037	)	$	(15,767	)
Additional compensation expense		(95	)		(3,504	)		(3,459	)
Pro forma	$	(20,964	)	$	(27,541	)	$	(19,226	)
Basic and diluted loss from continuing operations per share:
As reported	$	(.46	)	$	(.53	)	$	(.38	)
Pro forma		(.46	)		(.61	)		(.46	)

The fair value of each option grant has been estimated at the grant date using a Black-Scholes option pricing model with the following weighted average assumptions: dividend rate of 0% for all years; risk-free interest rates of 4.10%, 4.60% and 3.86% for 2006, 2005 and 2004, respectively, volatility factor of expected market price of our common stock of 0.9, 0.7 and 0.7 for 2006, 2005 and 2004, respectively, and expected lives of three years for 2006 and ten years for 2005 and 2004. The pro-forma additional compensation expense for the year ended March 31, 2005 includes $1,143 resulting from accelerated vesting in March 2005 of options whose exercise price exceeded current quoted market value. The accelerated vesting enabled the Company to avoid recognizing in its statement of operations, compensation expense associated with these options in future periods upon the adoption of FASB Statement No. 123(R) “Share-Based Payment” in April 2006.

Net (loss) income per common share – The Company follows the provisions of SFAS No. 128, “Earnings per Share.” Basic net (loss) income per common share is computed based upon the weighted average number of common shares issued and outstanding during each year. Diluted net (loss) income per common share amounts assume conversion, exercise or issuance of all potentially dilutive common stock instruments (stock options as discussed in Note 13).

Common stock equivalents and their impact on net loss have been excluded from the diluted per common share calculation for all years presented, since the Company incurred net losses and the inclusion of common stock equivalents would have had an anti-dilutive impact. Potentially dilutive securities, which have been excluded, consist of i) unexercised stock options and warrants to purchase 5,114, 5,906 and 5,977 shares of the Company’s common stock as of March 31, 2006, 2005 and 2004, respectively, and ii) 2,193 shares of the Company’s common stock issuable upon conversion of convertible debt as of March 31, 2006, 2005 and 2004, respectively.

New Accounting Pronouncements – In December 2004, the FASB issued a revision to Statement No. 123 (revised 2004), Share-Based Payment. Statement 123(R), with certain exceptions, require entities that grant stock options and shares to employees to recognize the fair value of those options and shares as compensation cost over the service (vesting) period in their financial statements. The measurement of that cost will be based on the fair value of the equity or liability instruments issued. Statement 123(R) is required to be adopted by the Company in the first interim period of our fiscal year 2007. As part of this adoption, the Company will begin expensing its options effective April 1, 2006 and has also elected to not restate prior period results. The Company does not believe that the adoption of the provisions of SFAS No. 123(R) will have a material impact on the Company’s consolidated financial statements.

F - 9

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29. The guidance in APB No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in APB No. 29, however, included certain exceptions to that principle. SFAS No. 153 amends APB No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. The provision of SFAS No. 153 is effective in periods beginning after June 15, 2005. The Company does not believe that the adoption of the provisions of SFAS No. 153 will have a material impact on the Company’s consolidated financial statements.

In December 2004, the FASB issued FASB Staff Position (FSP) No. 109-1 (FAS No. 109-1), Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004. The American Jobs Creation Act (AJCA) introduces a special 9% tax deduction on qualified production activities. FAS No. 109-1 clarifies that this tax deduction should be accounted for as a special tax deduction in accordance with SFAS No. 109. The Company’s adoption of these new tax provisions had no material impact on its consolidated financial position, results of operations or cash flows.

In December 2004, the FASB issued FASB Staff Position No. 109-2 (FAS No. 109-2), Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creations Act of 2004. The AJCA introduces a limited time 85% dividends received deduction on the repatriation of certain foreign earnings to a United States taxpayer (repatriation provision), provided certain criteria are met. FAS No. 109-2 provides accounting and disclosure guidance for the repatriation provision. The Company made no dividends under the repatriation provision of the Act and the adoption of this FSP had no material impact on its consolidated financial position, results of operations or cash flows.

In November 2005, the FASB issued FASB Staff Position FAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The guidance in this FSP addresses the determination of when an investment is considered impaired, whether that impairment is other-than-temporary, and the measurement of an impairment loss. The FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities. The guidance in this FSP nullifies certain requirements of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, and supersedes EITF Abstracts, Topic D-44, Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value. The guidance in this FSP is required to be applied to reporting periods beginning after December 15, 2005. The Company will adopt this Staff Position during fiscal year 2007 and does not believe it will not have a material impact on its consolidated financial statements.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. This new standard replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements. Among other changes, SFAS No. 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS No. 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a restatement. The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The Company will adopt the provisions of SFAS No. 154 in fiscal 2007 and does not believe it will not have a material impact on the Company’s consolidated financial statements.

Note 2. Acquisitions

In September 2001, the Company purchased the membership interests and business of Pacific Consultants LLC (a provider of electromechanical design and test consulting services). The purchase agreement provided for additional adjustment of the purchase price, payable in cash or common stock if earnings targets were met for the acquired business in the two years following the acquisition. Payments of $4,086 during the year ended March 31, 2004 fully paid the remaining obligations under this purchase agreement.

F - 10

Note 3. Accounts Receivable

Accounts receivable consists of the following:

	March 31,
	2006			2005
Accounts receivable	$	126,514		$	100,947
Less allowance for doubtful accounts		(5,407	)		(2,188	)
	$	121,107		$	98,759

Changes to the allowance for doubtful accounts consist of the following:

	March 31,
	2006			2005
Balance at beginning of year	$	2,188		$	3,097
Bad debt expense		2,823			766
Accounts written off		(511	)		(1,675	)
Charges to sales – returns and allowances		907			—
Balance at end of year	$	5,407		$	2,188

Note 4. Inventories

Inventories consist of the following:

	March 31,
	2006		2005
Raw materials	$	49,166	$	50,325
Work in process		2,264		8,785
Finished goods		3,114		9,235
	$	54,544	$	68,345

Note 5. Property, Plant and Equipment, Net

Property, plant and equipment consists of the following:

	March 31,
	2006			2005
Land	$	2,052		$	2,030
Buildings and improvements		39,081			41,967
Machinery and equipment		72,149			84,281
Computer hardware and software		30,558			36,418
Construction in progress		1,368			1,297
		145,208			165,993
Less accumulated depreciation		(84,135	)		(89,824	)
	$	61,073		$	76,169

Note 6. Financing Arrangements

Long-term debt consists of the following:

	March 31,
	2006			2005
Domestic revolving credit facilities, interest at prime plus a margin: Working capital line ranging from 50 to 100 basis points or LIBOR plus a margin ranging from 250 to 300 basis points (8.4% at March 31, 2006 and 5.4% at March 31, 2005)	$	13,823		$	32,142
Scheduled term borrowings, interest at prime plus 6% (13.75% at March 31, 2006)		9,750			—
Foreign revolving credit facilities, interest rates ranging from 3.5% to 6.3% or SIBOR plus a margin of 175 basis points (6.4% at March 31, 2006 and 3.9% at March 31, 2005)		57,361			45,097
Convertible senior subordinated notes bearing interest at 6.5%, due May 1, 2007		4,861			4,745
Foreign notes payable, interest at 5.0% through June 2004 and prime less 100 basis points to June 2007, (4.9% at March 31, 2006 and 3.9% at March 31, 2005) due in monthly payments of $127 through June 2007. The notes are secured by buildings		1,082			2,672
Other		1,073			972
		87,950			85,628
Less current maturities		(75,983	)		(79,068	)
	$	11,967		$	6,560

F - 11

In April 2003, the Company entered into revolving credit facilities, as amended, with Wachovia Capital Finance Corporation and Bank of America N.A. (formerly Fleet National Bank of Connecticut), which provided up to $90,000 of revolving credit loans and letters of credit to expire in April 2007. Amendments during fiscal 2006, reduced revolving credit facility maximum lending to $40,000, but provided for additional scheduled term debt of $10,500 immediately with additional funding up to $5,000 available in certain circumstances and extended the expiration date to October 2009. The working capital facilities, which were limited to the lesser of the facilities amount or the available borrowing base, calculated as a percentage of eligible accounts receivable and inventory balances, bear interest at prime or Eurodollar rate plus a margin from 50 to 100 basis points, and 250 to 300 basis points, respectively, depending on excess available borrowing capacity within the facilities. The Company is obligated to pay a monthly fee of 3/8% on the unused portion of the facilities. The revolving credit facilities are collateralized by substantially all domestic assets and by investments in foreign subsidiaries. Due to the characteristics of the domestic working capital revolving credit facilities, in accordance with current accounting pronouncements, the Company has classified the amount outstanding as a current liability. Despite the balance sheet classification, the Company intends to manage the domestic working capital revolving credit facilities as long-term debt with a final maturity in October 2009. The Company has letters of credit totaling $2,525 outstanding as of March 31, 2006 under these facilities.

The Company also has separate available lines of credit in certain foreign locations totaling $82,000, renewable annually at the discretion of the lenders. Certain of these lines have been renewed subsequent to year end, consistent with past experience with these lenders. Advances under these lines of credit bear interest at fixed and variable rates ranging from 3.5% to 6.4% at March 31, 2006. The lines of credit are both unsecured and secured by certain foreign inventories, receivables and fixed assets.

In May 2002, pursuant to a securities purchase agreement, the Company sold to two investors $5,000 face value of 6 ¹/2 % convertible senior subordinated notes with a conversion price of $2.28 per share together with a seven year warrant which provided for the purchase of 788 shares of the Company’s common stock at an exercise price of $2.28 per share. The initial carrying value of the notes was reduced by $532 for the fair value of the common stock warrant issued to the two investors. The discount to the note is being amortized over the life of the notes.

As consideration for entering into the transaction, in lieu of cash, the Company issued additional warrants to the two investors to purchase 1,000 shares of the Company’s common stock at an exercise price of $2.00 per share. The fair value of the warrants of $898 was capitalized as financing fees and is being amortized over the life of the notes.

In July 2002, the Company entered into an amendment and termination agreement eliminating the remaining obligation to sell notes and related warrants pursuant to the securities purchase agreement. The Company issued additional warrants in consideration for the amendment and termination agreement providing for the purchase of 250 shares of the Company’s common stock. The fair value of the warrants of $188 was charged to interest expense as a cost of termination of the agreement.

Aggregate maturities of long-term debt are as follows for the years ending March 31:

2007	$	75,983
2008		7,973
2009		3,061
2010		760
2011		10
Thereafter		163
	$	87,950

F - 12

Note 7. Restructuring and Impairment Charges

A rollforward of restructuring provisions is as follows:

	Employee Termination and Severance Costs			Future Lease Costs			Total
Fiscal 2004:
Reserve balance at April 1, 2003	$	342		$	537		$	879
Fiscal 2004 restructuring charges		981			4,608			5,589
Additions to fiscal 2003 restructuring charges		—			1,063			1,063
Cash payments		(1,301	)		(2,274	)		(3,575	)
Foreign currency translation adjustment		53			—			53
Reserve balances at March 31, 2004		75			3,934			4,009
Fiscal 2005:
Fiscal 2005 restructuring charges		917			2,739			3,656
Cash payments		(923	)		(2,884	)		(3,807	)
Foreign currency translation adjustment		(1	)		3			2
Reserve balances at March 31, 2005		68			3,792			3,860
Fiscal 2006:
Fiscal 2006 restructuring charges		421			7,981			8,402
Cash payments		(457	)		(2,585	)		(3,042	)
Foreign currency translation adjustment		8			92			100
Reserve balances at March 31, 2006	$	40		$	9,280		$	9,320

During fiscal 2003, the Company incurred restructuring costs related to the decision to consolidate separate manufacturing facilities in San Jose, California, into a single facility. Additionally, severance costs were incurred, primarily in The Netherlands and in the United States’ locations, responding to reductions in local business requirements. As of March 31, 2006, there are no further payments expected for these restructuring costs.

During fiscal 2004, the Company recorded charges of $7,876 for restructuring related costs as a result of a Company initiative based upon a strategic review of the Company’s primary products and business aimed at optimizing and aligning its manufacturing capacity with customer demand, while positioning the Company for stronger operating results. The charges consisted of asset write-downs of $1,224 for machinery and equipment; $981 for employee termination and severance costs related to approximately 100 salaried and hourly employees located primarily at three domestic operating sites; and $5,671 for adjustment of expected future lease costs, associated with the closing of one California facility in fiscal 2003 and one additional California facility in fiscal 2004. The fiscal 2004 restructuring actions taken pertain to operations for those businesses and locations experiencing negligible or negative growth due to continued market declines in the Communications and Optical business sectors. Certain machinery and equipment were written down to their estimated fair values as a direct result of the continued decline in the optical business sector, which has resulted in excess capacity and under-utilized machinery and equipment. As of March 31, 2006, accruals of $5,739, including fiscal 2006 adjustments remain with respect to these future lease costs.

During fiscal 2005, the Company recorded charges of $4,956 for restructuring related costs to further reduce facilities and employee counts to position the Company for stronger operating results. These charges consisted of asset write-downs of $1,300, primarily leasehold improvements; $917 for employee termination and severance costs related to approximately 165 salaried and hourly employees (137 from domestic and 28 from South American sites); and $2,739 for expected losses on lease commitments in our Taunton, Massachusetts, Chaska, Minnesota and secondary Rochester, Minnesota sites. The fiscal 2005 restructuring actions taken pertain to further reducing general excess capacity and create the opportunity to streamline personnel and capital deployed into the remaining sites. As of March 31, 2006, accruals of $40 and $1,431 remain related to these employee termination and severance costs and future lease costs, respectively.

During fiscal 2006, the Company recorded charges of $10,462 for restructuring related costs to further reduce facilities and employee counts to position the Company for stronger operating results. These charges consisted of asset write-downs of $2,060, primarily leasehold improvements; $421 for employee termination and severance costs related to approximately 161 salaried and hourly domestic employees; and $7,981 of new provisions and adjustments to prior estimates for expected losses on lease commitments in our California and Chaska, Minnesota sites. The fiscal 2006 restructuring actions taken pertain to further reducing general excess capacity and create the opportunity to streamline personnel and capital deployed into the remaining sites. As of March 31, 2006, accruals of $2,110 remain related to severance costs and future lease costs.

F - 13

Discontinued operations include restructuring costs of $5,026, $249 and $85 for the fiscal 2006, 2005 and 2004 years, respectively.

As of March 31, 2006, approximately $4,510, $2,351 and $1,621 of cash payments had been made against the accrual associated with the fiscal 2004, 2005 and 2006 charges, respectively.

Note 8. Other Expense (Income) – Net

The other expense (income) - net consists of the following:

	Year Ended March 31,
	2006			2005			2004
Foreign currency (gains) losses	$	(432	)	$	190		$	(433	)
Other expense (income) - net		479			(928	)		81
	$	47		$	(738	)	$	(352	)

Note 9. Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, and accounts receivable and payable approximate fair value due to the short-term maturity of these instruments. The carrying amount of the Company’s revolving line of credit and long-term notes approximate fair value because the majority of the amounts outstanding accrue interest at variable rates.

Note 10. Commitments and Contingencies

The Company has various capital and operating leases, which expire on various dates through 2023. Future minimum payments under both capital leases and operating leases are as follows:

	Capital Leases			Operating Leases
Year Ending March 31,
2007	$	1,786		$	6,596
2008		1,456			4,982
2009		1,416			4,383
2010		1,442			3,861
2011		1,468			1,968
Thereafter		20,084			1,624
Total minimum lease payments		27,652		$	23,414
Less amount representing interest		(15,530	)
Present value of minimum lease payment		12,122
Less current portion		(482	)
	$	11,640

Property, plant and equipment includes the following amounts for capitalized leases:

	March 31,
	2006			2005
Buildings and improvements	$	12,000		$	12,000
Machinery and equipment		927			604
Computer hardware and software		558			558
		13,485			13,162
Less accumulated depreciation		(2,754	)		(1,686	)
	$	10,731		$	11,476

Total rent expense recognized under operating leases for the years ended March 31, 2006, 2005 and 2004 totaled $6,637, $7,671 and $10,316, respectively for continuing operations and $241, $1,546 and $1,989, respectively in discontinued operations.

The Company was a defendant, along with several current and former officers and directors, in a consolidated putative class action captioned In re PEMSTAR Securities Litigation, alleging violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 and Sections 11 and 12 of the Securities Act of 1933. The lawsuit was a consolidation of several lawsuits, the first of which was commenced in United States District Court for the District of Minnesota on July 24,

F - 14

2002. The plaintiffs, several individual shareholders, alleged, in essence, that the defendants defrauded the shareholders by making optimistic statements during a time when they should have known that business prospects were less promising and alleged that the registration statement filed by the Company in connection with a secondary offering contained false, material misrepresentations. An Amended Consolidated Complaint was filed January 9, 2003.

On August 23, 2002 and October 2, 2002 two different individual shareholders also commenced virtually identical shareholder derivative actions against the Company as nominal defendant and our Board of Directors. Those actions have been consolidated and were pending in United States District Court for the District of Minnesota, Third Judicial District, County of Olmsted. The allegations in the consolidated derivative actions were based on many of the same facts that gave rise to the securities action. The derivative actions alleged that our Board of Directors breached its fiduciary duties by allegedly allowing the violations of the securities laws to occur.

In March 2005, the Company entered into a settlement agreement with plaintiffs in the securities of the In re PEMSTAR Securities Litigation. On March 27, 2005, the Company received final approval of the settlement by United States District Court for the District of Minnesota. Under terms of this $12,000 settlement, the Company paid $250 and the Company’s insurers paid the remaining $11,750. The settlement fully resolves these claims against the Company and several of its current and former officers and directors. The consolidated derivative lawsuits pending in Olmsted County have also been settled. The settlement was approved by the Olmsted County Court. This settlement required the Company to enforce certain corporate governance policies and provides for payment of plaintiffs attorney fees ordered by the Olmsted County Court, with those fees to be paid by the Company’s insurers. After the Olmsted County district court approved the settlement and entered judgment, an individual who claimed to own PEMSTAR shares appealed the settlement on November 8, 2005. The appeal is currently pending in the Minnesota Court of Appeals. The Company believes the appeal lacks merit.

On June 16, 2005 a putative class action was filed by an individual shareholder against PEMSTAR and certain of its current officers and directors. The lawsuit is pending in the United States District Court for the District Court of Minnesota and is captioned: In re PEMSTAR INC. Securities Litigation, Civil Action No. 05-CV-01182 – JMR/FLN. The lawsuit alleges violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 and Section 11 of the Securities Act of 1933. An Amended Complaint was filed on November 28, 2005, which set forth the claim and established that the action was going forward with a lead plaintiff and lead counsel for the plaintiff class. The plaintiff alleges, in essence, that the defendants defrauded our shareholders by failing to timely disclose the circumstances around the discrepancies in the accounting of the Mexico facility that generated a restatement. The lawsuit also alleges that the registration statement filed by us in connection with a secondary offering contained false, material misrepresentations. The plaintiff seeks to represent a class of persons who purchased Company stock from January 30, 2003 through and including January 12, 2005. An Amended Consolidated Complaint was filed January 9, 2006. The Amended Complaint does not specify an amount of damages. Discovery is ongoing. The Company and the individuals will vigorously defend against the claim and believe the lawsuit is without merit.

On July 26, 2005, an individual who claims to own Company shares filed a derivative action in Olmsted County District Court captioned: Michael Tittle, et al. v. Allen Berning, et al. Civil No. 55-CO-05-003235. An Amended Complaint was filed on November 11, 2005, which established that the action was going forward and set forth the claim. The lawsuit alleges that the Company’s Board of Directors breached their fiduciary duties by allowing circumstances to exist that generated a restatement. The lawsuit includes allegations that the defendants believe have been released as part of the settlement of the derivative lawsuit discussed above. A motion to dismiss the lawsuit is pending and the Court has stayed the proceeding pending resolution of the appeal of the settlement of the derivative case discussed above.

F - 15

Note 11. Income Taxes

(Loss) income before income taxes consisted of the following:

	Year ended March 31,
	2006			2005			2004
From continuing operations:
Domestic	$	(23,883	)	$	(29,626	)	$	(25,869	)
Foreign		2,049			3,764			9,906
	$	(21,834	)	$	(25,862	)	$	(15,963	)
From discontinued operations:
Domestic	$	(530	)	$	(285	)	$	(75	)
Foreign		(6,754	)		(8,987	)		(8,743	)
	$	(7,284	)	$	(9,272	)	$	(8,818	)

The provision for income tax expense (benefit) consisted of the following:

	Year ended March 31,
	2006			2005			2004
From continuing operations:
Current:
Domestic	$	43		$	82		$	(24	)
Foreign		102			(498	)		328
		145			(416	)		304
Deferred:
Domestic		—			—			—
Foreign		(1,110	)		(1,409	)		(500	)
		(1,110	)		(1,409	)		(500	)
	$	(965	)	$	(1,825	)	$	(196	)
From discontinued operations:
Current - Foreign	$	—		$	428		$	699
Comprehensive loss:
Deferred - Foreign	$	(1,221	)	$	—		$	—

A reconciliation of the provision for income taxes for continuing operations at the statutory rates to the reported income tax provision for continuing operations is as follows:

	Year ended March 31,
	2006			2005			2004
Computed “expected” tax rate	$	(7,642	)	$	(8,793	)	$	(5,427	)
Increase (decrease) in income taxes resulting from:
State taxes, net of credits and federal income tax benefit		(711	)		(1,241	)		(1,069	)
Deemed dividend		2,625			493			680
Benefit of foreign sales/extraterritorial income exclusion		—			(155	)		(155	)
Foreign taxes		(1,726	)		(3,534	)		(2,596	)
Valuation allowance		6,389			11,359			8,643
Other		100			46			(272	)
	$	(965	)	$	(1,825	)	$	(196	)

F - 16

A summary of deferred tax assets and liabilities is as follows:

	March 31,
	2006			2005
Deferred tax assets:
Allowance for doubtful accounts	$	337		$	392
Allowance for inventory obsolescence		686			1,114
Reserve for goodwill impairment		5,517			6,630
Deferred revenue		479			1,151
Deferred depreciation		1,121			—
Domestic net operating losses		47,096			40,355
State tax credits		989			1,097
Foreign expenses accelerated for book purposes		3,652			3,414
Foreign net operating losses		5,589			2,015
Other		2,727			2,254
Total deferred tax assets		68,193			58,422
Deferred tax liabilities:
Accelerated depreciation		—			(364	)
Foreign expenses accelerated for tax purposes		(1,332	)		—
Other		(236	)		(303	)
Total deferred tax liabilities		(1,568	)		(667	)
		66,625			57,755
Valuation allowance:
Domestic		(58,716	)		(52,327	)
Foreign		(4,276	)		(1,742	)
Total valuation allowance		(62,992	)		(54,069	)
Net deferred tax assets	$	3,633		$	3,686

No provision has been made for U.S. income taxes related to undistributed earnings of foreign subsidiaries.

Deferred tax liabilities and deferred tax assets reflect the net tax effects of temporary differences between the carrying amounts assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The valuation allowance has been established due to the uncertainty of future taxable income, which is necessary to realize the benefits of the deferred tax assets. The Company has approximately $130,400 of domestic net operating loss carryforwards, which will expire from 2022 to 2026. Of this carryforward total, $8,700 will result in tax benefits that will not reduce tax expense on current earnings, but rather will increase additional paid-in capital. The Company has approximately $17,200 of foreign net operating loss carryforwards that have an unlimited carryforward period, and foreign net operating loss carryforwards, in relation to discontinued operations, of approximately $20,000 that will expire from 2011 to 2015. The state tax credit carryforwards of $1,552 expire at varying dates through 2017.

Realization of the net operating loss carryforwards and other deferred tax temporary differences are contingent on future taxable earnings. The deferred tax asset was reviewed for expected utilization using a “more likely than not” approach by assessing the available positive and negative evidence surrounding its recoverability. Accordingly, a valuation allowance has been recorded against the Company’s deferred tax asset. The Company will continue to assess and evaluate strategies that will enable the deferred tax asset, or portion thereof, to be utilized, and will reduce the valuation allowance appropriately at such time when it is determined that the “more likely than not” criteria is satisfied. During fiscal 2006 foreign valuation allowances of $240 were established and $1,750 were released to reflect changes in the expected realization of benefits from net operating losses carried forward in their respective tax jurisdictions.

The foreign tax expense in China was decreased $66 ($0.00 per share on a basic and diluted basis) in fiscal 2006, $29 ($0.00 per share on a basic and diluted basis) in fiscal 2005 and $139 ($0.00 per share on a basic and diluted basis) in fiscal 2004 as a result of the benefit of a tax holiday. This holiday ran at 50% relief of the normal 15% income tax rate, or 7.5%, through December 31, 2003. Beginning on January 1, 2004, China began a new tax holiday in the form of a 5% provincial rebate for qualified activity, which is renewable annually. The foreign tax expense in Singapore was decreased by $194 ($0.00 per share on a basic and diluted basis) in fiscal 2005 and $1,040 ($0.02 per share on a basic and diluted basis) in fiscal 2004 as the result of the benefit of a tax holiday. This holiday from the normal 22% income tax rate ended May 31, 2004. During fiscal 2005 and 2004, current tax expense in Mexico, included in discontinued operations, reflects minimum taxes payable in lieu of income tax computed on earnings.

F - 17

Note 12. Geographic and Concentration of Credit Risk Information

The Company derives its revenue from one reportable segment, electronic manufacturing services. The Company classifies sales geographically based upon country from which the final product is delivered. The following is a summary of net sales and long-lived assets by geographic location:

	Year Ended March 31,
	2006		2005		2004
Net sales:
United States	$	358,610	$	429,575	$	408,290
Americas, other		—		139		322
China		355,174		61,852		87,133
Asia, other		91,304		101,771		72,773
Europe		65,930		66,314		61,312
	$	871,018	$	659,651	$	629,830
Long-lived assets:
United States	$	23,899	$	35,477	$	49,095
Americas, other		—		—		54
China		28,845		31,835		30,987
Asia, other		9,515		10,935		12,373
Europe		4,621		2,075		2,149
	$	66,880	$	80,322	$	94,658

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade receivables. Sales of the Company’s products are concentrated among specific customers in the same industry. The Company generally does not require collateral. The Company considers concentrations of credit risk in establishing the allowance for doubtful accounts and believes the recorded amount is adequate.

Customers that accounted for more that 10% of consolidated net sales are as follows:

	Year Ended March 31,
	2006		2005		2004
Customer A	40.8	%	—		—
Customer B	19.7	%	24.6	%	23.7	%
Customer C	—		13.2	%	—

As of March 31, 2006 and 2005, receivables from these customers represented 65.0% and 30.6% of total accounts receivable, respectively.

Note 13. Shareholders’ Equity

The Company has authorized 5,000 shares of $0.01 par value preferred stock. There are no shares of preferred stock outstanding.

In August and September 2003, the Company sold 7,475 shares in a public offering from which the Company received net proceeds of $19,981.

The Company has 1,360 shares of common stock available for grant or sale to board members and employees under incentive stock option and purchase plans approved by shareholders. Options are generally granted at prices equal to the fair market value on the dates of grant and vest at one third of grant in each of the following three years. All options are exercisable over a ten-year period.

F - 18

Following is a summary of stock option activity for the fiscal years ended March 31:

	Year Ended March 31,
	2006					2005					2004
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, beginning of year		3,868		$	4.64		3,938		$	5.11		3,940		$	5.67
Granted		518			1.09		652			2.09		812			2.90
Exercised/forfeited		(1,310	)		4.73		(722	)		4.88		(814	)		5.63
Outstanding, end of year		3,076			4.00		3,868			4.64		3,938			5.11
Exercisable, end of year		2,634			4.49		3,830			4.64		2,465			6.34
Weighted average fair value per share of options granted during the year	$	0.57			—	$	1.77			—	$	2.49			—

At March 31, 2006, the options outstanding have average remaining contractual lives and exercise prices as follows:

Shares	Average Contractual Life	Exercise Price
1,876	7.53 years	$0.00 – 4.99
779	3.53 years	$5.00 – 9.99
406	4.53 years	$10.00 – 14.99
15	5.15 years	$15.00 – 23.31

In March 2005 all future vesting of 1,175 options, which included all options whose exercise price exceeded current quoted market value, was accelerated. The accelerated vesting enabled the Company to avoid recognizing in its statement of operations compensation expense associated with these options in future periods upon the adoption of FASB Statement No. 123(R) “Share-Based Payment” in April 2006.

Note 14. Employee Benefit Plans

Retirement Plans

The Company sponsors various employee retirement savings plans that allow qualified employees to provide for their retirement on a tax-deferred basis. In accordance with the terms of the retirement savings plans, the Company is required to match certain of the participants’ contributions and, at its discretion, may provide employer contributions based on the Company’s performance and other factors. Employer contributions for the years ended March 31, 2006, 2005 and 2004 totaled $1,001, $1,202 and $1,262, respectively.

The Company sponsors a defined benefit retirement plan program at its Netherlands facility. As of March 31, 2006, the fair value of the plan assets and projected benefit obligations were $5,775 and $5,951, respectively. Expenses associated with this plan totaled $238, $234 and $165 for the years ended March 31, 2006, 2005 and 2004, respectively.

Employee Stock Purchase Plan

During 2001, the Company established an employee stock discount purchase plan that provides for the sale of up to 1,500 shares, as amended during 2002 and 2003, of the Company’s stock at discounted purchase prices, subject to certain limitations. The cost per share under this plan is 85 percent of the market value of the Company’s common stock at the date of purchase, as defined. During the year ended March 31, 2004, 98 previously unissued shares of common stock were issued to employees pursuant to this plan. The weighted average fair value of shares sold in 2004, was $2.50. During the year ended March 31, 2006 and 2005 the 253 and 266 required shares, respectively sold at the weighted average price of $1.07 and $1.61 per share, respectively were purchased on the open market resulting in a $56 charge and an $86 charge to additional paid in capital for discount to market and trustee costs, respectively.

F - 19

Note 15. Supplemental Cash Flow Information

	Year Ended March 31,
	2006			2005		2004
Supplemental disclosures for cash flow information:
Cash (collections) payments for:
Interest	$	8,130		$	7,038	$	6,891
Income taxes		(638	)		721		1,492
Supplemental schedule of non-cash investing and financing activities:
Property and equipment acquired through capital lease agreements		411			604		811
Deferred tax liability charged to cumulative translation adjustment		1,221			—		—

Note 16. Cash Requirements

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred a loss from continuing operations of approximately $20,869 for the year ended March 31, 2006, which included $10,462 of restructuring costs. The Company continually evaluates its operations to determine the need for further restructuring in response to market conditions. Although the operating loss for fiscal 2006 was not unexpected, given the prior year losses and the continuing economic pressure on several large customers of the Company in certain industry sectors, the Company’s long-term ability to continue to fund its operations and to grow the business depends on its ability to generate additional cash from operations or obtain additional sources of funds for working capital.

The domestic revolving credit facilities were replaced during fiscal 2004 to provide expanded capacity for funding business growth and to extend arrangements approaching the expiration of their term. Amendments to the facilities agreements have been made which restricted the working capital funding portion of this agreement but provided additional funding with scheduled payments, extended the termination date and changed various operating characteristics of the agreement. These facilities require the maintenance of certain minimum cash flow levels. Compliance by the Company with certain covenants in its credit facility is dependent upon the Company achieving certain revenue and expense targets in its fiscal 2007 operating plan. The Company expects to meet its financial projections for the 2007 fiscal year. The Company also believes that, if necessary, it would be able to secure additional financing from its lenders or sell additional Company equity securities; however, there can be no assurance that such funding can be obtained or that future credit facility violations will be waived.

During fiscal 2006, the Company has obtained significant funding locally for its foreign operations and has obtained commitments for further increases. As such, it has become substantially less reliant on domestic lines of credit for needs outside of domestic operations in recent years.

Management believes that, as a result of the restructuring actions it has taken to reduce cash expenditures, the efforts it continues to make to increase revenues from continuing customers and to generate new customers in various industry sectors and the new agreements it has reached to provide additional borrowing capacity, it will meet the liquidity requirements of its operations and lending agreements.

F - 20

Note 17. Quarterly Results of Operations (UNAUDITED)

The following table sets forth unaudited quarterly financial information of Pemstar for the quarterly periods in fiscal 2006 and 2005. Historically, we have experienced some seasonal variation in net sales, with net sales, excluding inventory sales, typically being highest in the quarter ended December 31 and lowest in the quarter ended March 31. This seasonal variation reflects the order patterns of our largest customers, who typically order a higher proportion of their annual production in their final fiscal quarter. This seasonal variation has been offset recently by internal growth, acquisitions, general economic conditions, end of life projects and customer disengagements. This information has been derived from our quarterly consolidated financial statements, which are unaudited, but, in the opinion of management, fairly represent our financial performance. This information should be read in conjunction with the consolidated financial statements and the related notes contained elsewhere in this report. The operating results for any previous quarter are not necessarily indicative of results for any future period.

Quarter Ended (In thousands, except per share data)	Mar. 31, 2006			Dec. 31, 2005			Sept. 30, 2005			June 30, 2005			Mar. 31, 2005			Dec. 31, 2004			Sept. 30, 2004			June 30, 2004
Net sales	$	196,216		$	253,885		$	211,074		$	209,843		$	145,501		$	170,955		$	157,875		$	185,320
Cost of goods sold		181,976			238,630			204,010			204,354			139,119			164,585			144,756			167,781
Gross profit		14,240			15,255			7,064			5,489			6,382			6,370			13,119			17,539
Selling, general and administrative expenses		9,861			11,275			10,480			12,125			14,562			13,847			14,404			13,860
Restructuring		(26	)		249			7,893			2,346			47			4,689			220			—
Amortization		12			11			11			11			153			14			26			26
Operating income (loss)		4,393			3,720			(11,320	)		(8,993	)		(8,380	)		(12,180	)		(1,531	)		3,653
Other expense (income) – net		1,014			(19	)		(884	)		(64	)		31			382			255			(1,406	)
Interest expense		2,370			2,769			2,771			1,677			2,166			1,917			2,066			2,013
Income (loss) before income taxes		1,009			970			(13,207	)		(10,606	)		(10,577	)		(14,479	)		(3,852	)		3,046
Income tax (benefit) expense		(435	)		(6	)		168			(692	)		(914	)		(509	)		(480	)		78
Net income (loss) from continuing operations		1,444			976			(13,375	)		(9,914	)		(9,663	)		(13,970	)		(3,372	)		2,968
Net income (loss) from discontinued operations		469			36			(83	)		(7,706	)		(2,650	)		(1,948	)		(2,659	)		(2,443	)
Net income (loss)	$	1,913		$	1,012		$	(13,458	)	$	(17,620	)	$	(12,313	)	$	(15,918	)	$	(6,031	)	$	525
Basic income (loss) per common share:
Income (loss) from continuing operations	$	0.03		$	0.02		$	(0.30	)	$	(0.22	)	$	(0.21	)	$	(0.31	)	$	(0.07	)	$	0.07
Income (loss) from discontinued operations	$	0.01		$	0.00		$	(0.00	)	$	(0.17	)	$	(0.06	)	$	(0.04	)	$	(0.06	)	$	(0.06	)
Net income (loss)	$	0.04		$	0.02		$	(0.30	)	$	(0.39	)	$	(0.27	)	$	(0.35	)	$	(0.13	)	$	0.01
Diluted income (loss) per common share:
Income (loss) from continuing operations	$	0.03		$	0.02		$	(0.30	)	$	(0.22	)	$	(0.21	)	$	(0.31	)	$	(0.07	)	$	0.06
Income (loss) from discontinued operations	$	0.01		$	0.00		$	(0.00	)	$	(0.17	)	$	(0.06	)	$	(0.04	)	$	(0.06	)	$	(0.05	)
Net income (loss)	$	0.04		$	0.02		$	(0.30	)	$	(0.39	)	$	(0.27	)	$	(0.35	)	$	(0.13	)	$	0.01
Shares used in computing income (loss) per common share:
Basic		45,217			45,179			45,184			45,195			45,173			45,153			45,150			45,142
Diluted		47,948			47,522			45,184			45,195			45,173			45,153			45,150			48,662

F - 21

Schedule II—Valuation and Qualifying Accounts

Pemstar Inc.

Col. A	Col. B		Col. C					Col. D			Col. E
	Balance at Beginning of Period		Additions					Deductions Described			Balance at End of Period
(Amounts in thousands) Description			Charged to Costs and Expenses		Charged to Other Accounts— Described
Excludes reserves related to discontinued operations:
YEAR ENDED MARCH 31, 2006
Reserve and allowances deducted from accounts:
Allowance for uncollectible accounts	$	2,188	$	2,823	$	907	(2)	$	511	(1)	$	5,407
Allowance for deferred tax assets		54,069		8,923		—			—			62,992
YEAR ENDED MARCH 31, 2005
Reserve and allowances deducted from accounts:
Allowance for uncollectible accounts	$	3,097	$	766	$	—		$	1,675	(1)	$	2,188
Allowance for deferred tax assets		48,712		5,357		—			—			54,069
YEAR ENDED MARCH 31, 2004
Reserve and allowances deducted from accounts:
Allowance for uncollectible accounts	$	3,403	$	764	$	—		$	1,070	(1)	$	3,097
Allowance for deferred tax assets		39,892		8,820		—			—			48,712

(1) Write-off of accounts receivable determined to be uncollectible.

(2) Charges to sales – returns and allowances.

F - 22

EX-10.7

EXHIBIT 10.7

CHANGE IN CONTROL AGREEMENT

This Agreement, made and entered into by and between PEMSTAR Inc., a Minnesota corporation (the “Company”), with its principal offices at 3535 Technology Drive N.W., Rochester, Minnesota, and *, an officer of the Company (the “Employee”), residing at *.

WHEREAS, this Agreement is intended to specify the financial arrangements that the Company will provide to the Employee upon the Employee’s separation from employment with the Company under any of the circumstances described herein; and

WHEREAS, this Agreement is entered into by the Company in the belief that it is in the best interest of the Company to provide stable conditions of employment for the Employee notwithstanding the possibility, threat, or occurrence of certain types of changes in control, thereby enhancing the Company’s ability to attract and retain highly qualified people.

NOW, THEREFORE, in consideration of the mutual covenants, promises, payments, and undertakings of the parties hereto, the parties agree as follows:

1. Effect of Agreement; Term. The Employee shall be employed on an at-will basis, except to the extent otherwise provided by a written employment agreement, if any, in effect between the Employee and the Company. This Agreement is not, and shall not be construed as, an employment contract affecting in any way the duration of the Employee’s employment or any terms and conditions thereof except those set forth herein. Except as set forth herein, or as otherwise provided by a written employment agreement, if any, in effect between the Employee and the Company, the Employee or the Company may terminate their employment relationship at any time, for any reason, or for no reason.

This Agreement will commence on the date hereof and shall continue in effect until the second anniversary of the date hereof; and, commencing on the first anniversary of the date hereof and on each anniversary thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than 90 days prior to any such date of automatic extension of this Agreement, the Company shall have given notice to the Employee that the Agreement will not be so extended; provided, however, if a Change in Control (as defined in section 3(a) hereof) shall have occurred during the original or any extended term of this Agreement, this Agreement shall continue in effect for a period of 24 months following such Change in Control (as defined in section 3(a) hereof), after which 24-month period this Agreement shall terminate.

2. Termination of Employment.

a) Prior to a Change in Control. Prior to the date that is six months before a Change in Control (as defined in section 3(a) hereof), or after termination of this Agreement, the Employee or the Company may terminate their employment relationship at any time, for any reason, or for no reason.

b) After a Change in Control.

i) From and after the date that is six months before a Change in Control (as defined in section 3(a) hereof) and prior to the termination of this Agreement, the Company shall not terminate the Employee from employment with the Company except as provided in this section 2(b), or as a result of the Employee’s Disability (as defined in section 3(d) hereof) or his death.

ii) From and after the date that is six months before a Change in Control (as defined in section 3(a) hereof) and prior to the termination of this Agreement, the Company shall have the right to terminate the Employee from employment with the Company for Cause (as defined in section 3(c) hereof), by written notice to the Employee, specifying the particulars of the conduct of the Employee forming the basis for such termination.

iii) From and after the date that is six months before a Change in Control (as defined in section 3(a) hereof) and prior to the termination of this Agreement: (a) the Company shall have the right to terminate the Employee’s employment without Cause (as defined in section 3(c) hereof); and (b) the Employee shall, upon the occurrence of such termination by the Company without Cause or upon the voluntary termination of the Employee’s employment by the Employee during such period for Good Reason (as defined in section 3(b) hereof), be entitled to receive the benefits provided in section 4 hereof. The Employee shall evidence a voluntary termination for Good Reason by written notice to the Company given within ten (10) days after the date of the occurrence of any event that the Employee knows or should reasonably have known constitutes Good Reason for voluntary termination. Such notice need only identify the Employee and set forth in reasonable detail the facts and circumstances claimed by the Employee to constitute Good Reason. Any notice given by the Employee pursuant to this section 2 shall be effective ten (10) days after the date it is given by the Employee.

3. Definitions.

a) A “Change in Control” shall mean any of the following:

i) A sale of all or substantially all of the assets of the Company.

ii) The acquisition of securities of the Company representing more than 50% of the combined voting power of the Company’s then outstanding securities by any person or group of persons, except a Permitted Shareholder as hereinafter defined, acting in concert. A “Permitted Shareholder” means a holder, as of the date of this Agreement, of voting capital stock of the Company.

iii) A consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company’s outstanding capital stock are converted into cash, securities or other property, other than a consolidation or merger of the Company in which Company

shareholders immediately prior to the consolidation or merger have the same proportionate ownership of voting capital stock of the surviving corporation immediately after the consolidation or merger.

iv) In the event that the shares of voting capital stock of the Company are traded on an established securities market: a public announcement that any person has acquired or has the right to acquire beneficial ownership of securities of the Company representing more than 50% of the combined voting power of the Company’s then outstanding securities, and for this purpose the terms “person” and “beneficial ownership” shall have the meanings provided in Section 13(d) of the Securities and Exchange Act of 1934, as amended or related rules promulgated by the Securities and Exchange Commission or; the commencement of or public announcement of an intention to make a tender offer or exchange offer for securities of the Company representing more than 50% of the combined voting power of the Company’s then outstanding securities.

v) The Board of Directors of the Company, in its sole and absolute discretion, determines that there has been a sufficient change in the share ownership of the Company to constitute a change of effective ownership or control of the Company.

b) “Good Reason” shall mean the occurrence of any of the following events, except for the occurrence of such an event in connection with the termination or reassignment of the Employee’s employment by the Company for Cause (as defined in section 3(c) hereof), due to the Employee’s Disability (as defined in section 3(d) hereof), or due to the Employee’s death:

i) The assignment to the Employee of employment responsibilities which are not of comparable responsibility and status as the employment responsibilities held by the Employee immediately prior to a Change in Control;

ii) a reduction by the Company in the Employee’s base salary as in effect immediately prior to a Change in Control;

iii) the Company’s requiring the Employee to be based at a location that is in excess of 50 miles from the location of the Employee’s principal office immediately prior to the Change in Control;

iv) the failure by the Company to provide employee benefit plans, programs, policies and practices (including, without limitation, retirement plans and medical, dental, life and disability insurance coverage) to the Employee and the Employee’s family and dependents (if applicable) that provide substantially similar benefits, in terms of aggregate monetary value, to the Employee and the Employee’s family and dependents (if applicable) at substantially similar costs to the Employee as the benefits provided by those plans, programs, policies and practices in effect immediately prior to the Change in Control; or

c) “Cause” shall mean:

i) Repeated neglect by the Employee of any of his duties or his repeated failures or omissions to carry out lawful and reasonable orders which, in the reasonable judgment of the Company, are willful and deliberate and which are not cured within a reasonable period after the Employee’s receipt of written notice thereof from the Company;

ii) Any act or acts of personal dishonesty by the Employee intended to result in the personal enrichment of the Employee at the expense of the Company;

iii) Any willful and deliberate misconduct that is materially and demonstrably injurious to the Company; or

iv) Any criminal indictment, presentment, charge or conviction of the Employee for a felony, whether or not the Company is the victim of such offense.

d) “Disability” shall mean any physical or mental condition which causes the Employee to fail to render services to the Company for a period of ninety (90) days during any one hundred eighty (180) day period. The existence or nonexistence of the Employee’s Disability will be determined in good faith by the Board of Directors after notice in writing given to the Employee at least thirty (30) days prior to such determination. During such thirty (30) day period, the Employee shall be permitted to make a presentation to the Board of Directors for its consideration.

e) “Company” shall mean the Company and any successor to its business and/or assets which executes and delivers the Agreement provided for in section 5(a) or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.

4. Benefits Upon Termination Under section 2(b)(iii).

a) Upon the termination (voluntary or involuntary) of the employment of the Employee pursuant to section 2(b)(iii) hereof, the Company shall pay to the Employee, in lieu of any further compensation to the Employee for periods subsequent to the date that the termination of the Employee’s employment becomes effective, as severance pay, two hundred twenty percent (220%) of the Employee’s annual base salary in effect at the time the notice of termination is given or immediately prior to the Change in Control (whichever is greater), payable in twenty four (24) equal monthly installments beginning in the first month after the termination. At the option of the Company, the amount due hereuncer may be prepaid in whole or in part at any time or from time to time.

b) All payments described in this section shall be subject to any applicable payroll or other taxes required by law to be withheld.

5. Successors and Binding Agreement.

a) This agreement shall inure to the benefit of and be binding upon the Company and its successors. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or of the assets of the Company to expressly assume and agree to perform this Agreement.

b) This agreement is personal to the Employee, and the Employee may not assign or transfer any part of his rights or duties hereunder, or any compensation due to him hereunder, to any other person. Notwithstanding the foregoing, this Agreement shall inure to the benefit of, and be enforceable by, the Employee’s personal or legal representatives, executors, administrators, heirs, distributes, devisees, and legatees.

6. Limitation of Damages. If for any reason the Employee believes the severance provisions of this agreement have not been properly adhered to by the Company, and if it is determined that the Company has not, in fact, properly adhered to the severance provisions of this Agreement, the sole and exclusive remedy to which the Employee is entitled is the severance payment to which the Employee is entitled under the provisions of this Agreement.

7. Modification; Waiver. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in a writing signed by the Employee and such officer as may be specifically designated by the Board of Directors of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

8. Notice. All notices, requests, demands, and all other communications required or permitted by either party by this Agreement (including, without limitation, any notice of termination of employment) shall be in writing and shall be deemed to have been duly given when delivered personally or received by certified or registered mail, return receipt requested, postage prepaid, at the address of the other party as first written above (directed to the attention of the Board of Directors in the case of the Company). Either party hereto may change its address for purposes of this section by giving fifteen (15) days’ prior written notice to the other party hereto.

9. Severability. If any term or provision of this Agreement or the application hereof to any person or circumstances shall to any extent be determined to be invalid or unenforceable, the remainder of the Agreement or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

10. Governing Law. This Agreement has been executed and delivered in the State of Minnesota and shall in all respects be governed by, and construed and enforced in accordance with, the laws of the State of Minnesota, including all matters of construction, validity, and performance.

11. Settlement of Disputes. Any claims or disputes of any nature between the Company and the Employee arising from or related to the performance, breach, termination, expiration, application or meaning of this Agreement shall, at the option of either party, be resolved exclusively by arbitration in Olmsted County, Minnesota, in accordance with the applicable rules of the American Arbitration Association. In the event of submission of any dispute to arbitration, each party shall, not later than 30 days prior to the date set for the hearing, provide to the other party and to the arbitrator(s) a copy of all exhibits upon which the party intends to rely at the hearing and a list of all persons each party intends to call at the hearing. The fees for the arbitrator(s) and other costs incurred by the Employee and the Company in connection with such arbitration shall be paid by the party that is unsuccessful in such arbitration. The decision of the arbitrator(s) shall be final and binding upon both parties. Judgement of the award rendered by the arbitrator(s) may be entered in any court of competent jurisdiction.

12. Effect of Agreement; Entire Agreement. The Company and the Employee understand and agree that this Agreement is intended to reflect their agreement only with respect to the subject matter hereof and is not intended to create any obligation on the part of either party to continue employment. This Agreement supercedes any and all other oral or written agreements or policies made relating to the subject matter hereof and constitutes the entire agreement of the parties relating to the subject matter hereof; provided that this Agreement shall not supercede or limit in any way the Employee’s rights under any benefit plan or program in accordance with its terms.

IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement by their signatures below.

Dated:                 , 200	PEMSTAR Inc.
_____________	By	_____________
_____________	Its	_____________
Dated:                 , 200	_____________________
_____________	Employee

EX-10.44

EXHIBIT 10.44

English Language Summary of the Lease Agreement

Parties

The Lease Agreement will be entered into by and between Shenzhen Yu Can Enterprise Co., Ltd. (“Party A”, lesser) and Pemstar Netherlands Holding B.V. (“Party B”, lessee).

Premise

Location:	Tower B1, Hai Xiang Industry Park, Lan Zhu Road, Long Gang District Export Processing Zone.
Area:	13,700 sq.m. with a total of 5 floors
Owner:	Shenzhen Yu Can Enterprise Co., Ltd.
Certificate:	House Ownership Certificate coded 0557055
Usage:	Industry/Factory

Warranty of Party A

Party A hereby warrants and covenants to Party B as follows:

1. The Premise is available for leasing to Party B;

2. Party A is the exclusive legal owner of the Premise and has the right to lease the Premise to Party B under the terms stipulated in this Lease Agreement; and

3. The lease of the Premise shall not be affected by any mortgage right or third party rights;

Rental

Unit Price (First Year) :	RMB16 per sq.m per month
Monthly Rental (First Year) :	RMB219,200
Unit Price (Second Year) :	RMB17 per sq.m per month

When the term is expired and Party B desires to extend the leasing, the rental for extended period may increase 10% per year.

Term

From March 15, 2006 to March 14, 2008. The exact date is to be determined.

Party A shall deliver the Premise to Party B for use on the commence date.

When the term is expired, if Party B desires to extend the leasing, it shall give Party A a notice 2 months prior to the expiration date. Party B has a priority to lease the Premise under same conditions. Parties shall enter into a new agreement for extending the term.

Rental-free Period

Party A agrees to grant a 2 month rental-free period.

Payment

Party B shall settle the first installment of RMB219,200 by May 15, 2006, i.e. the commence date.

Party B then shall settle the monthly rental by the 5^th day of each month or the next working day if the 5^th day is a public holiday.

Party A shall issue an invoice to Party B when Party B paying the rental.

Party A shall pay RMB1.40 per sq m for estate management fee.

Guarantee/Deposit

Party B shall pay a guarantee/deposit of RMB 438,400 to Party A. Such guarantee/deposit will be returned to Party B with 5 days after expiration or termination of the Lease Agreement, if:

(1) term of the Lease Agreement is expired, or the Lease Agreement is terminated and Party B does not breach the Lease Agreement or its breach is not substantial and is already remedied;

(2) Party B has settled and cleared all the rentals and other payables; and

(3) Party B has moved out from the Premise and returned the Premise to Party A.

Under the following circumstances, such guarantee/deposit will not be returned:

(1) Party B terminated the Lease Agreement without written consent of Party A, unless Article 18 or Article 20 allows it.

(2) Party B fails to pay the rental or other payables and the outstanding amount is equal or more than one month’s rental; or

(3) Party B fails to move out from the Premise or return the Premise when the Lease Agreement is expired or terminated.

Repairing

Should any damage or breakdown interrupting the safe and normal use occur to the Premise or the facilities equipped therein during the course of use, Party B shall notify Party A and take effective measures without delay; Party A shall do the repair work within 2 days after receipt of such notice from Party B; if Party B is unable to notify Party A or Party A refuses to undertake repair, Party B may do the repair work by itself when certified by the registration authority of this Lease Agreement. Any reasonable expenses for repair (including those Party B pays for the repair on behalf of Party A) shall be borne by Party A.

If such damages or breakdown are occurred due to the reason contributable to default of Party B, Party B shall be responsible for repairing. If Party B refuses to repair, Party A may do the repair work by itself when certified by the registration authority of this Lease Agreement. Any repair expenses (including those Party A pays for the repair on behalf of Party B) shall be borne by Party B.

Sub-Lease

Party B may sublease the Premise with a written consent of Party A.

Priority of Purchasing

During the term of Lease Agreement, Party A shall notify Party B of any transfer of all or any part of the Premise one month prior to the transfer. Party B shall have the priority to purchase under the same conditions.

In the event of transfer of the Premise to third party, Party A shall ensure that the transferee shall perform the obligations of Party A under this Lease Agreement.

Termination & Compensation

The Lease Agreement may be terminated or revised under the following circumstances:

(1) The Lease Agreement cannot be implemented due to any force majeure or fortuitous event;

(2) The government decides to requisition the land where the Premise is located and, therefore, the Premise is required to be demolished;

(3) Through negotiations the Parties mutually agree to terminate this Lease Agreement.

The Lease Agreement can be terminated by Party A unilaterally and Party A may claim for a compensation of Party B on any damages or losses it suffers under the following circumstances:

(1) Party B has failed to pay the rent for a consecutive period of 20 days;

(2) Party B has failed to pay expenses payable to Party A, which may bring a loss more than RMB150,000;

(3) Party B uses the Premise to carry out illegal business, damaging the interests of the public or third party;

(4) Without consent of Party A, Party B has used the Premise for purposes other than those set forth under the Lease Agreement, or change the structure of the Premise;

(5) Party B refuses to bear the repair and compensation liabilities, or refuses to pay the repair expenses or make compensation in violation of the Lease Agreement;

(6) Without consent of Party A, Party B has carried out repair and installation in the Premise;

(7) Without approval by Party A, Party B has subleased the Premise to others.

The Lease Agreement can be terminated by Party B unilaterally and Party B may claim for a compensation of Party A on any damages or losses it suffers under the following circumstances:

(1) Party A has failed to provide the Premise to Party B for use and such delay exceeds 7 days.

(2) The Premise provided by Party A cannot be used for the purposes set forth in this Lease Agreement;

(3) Party A fails to bear the repair and compensation liabilities or pay the expenses for repair;

(4) Without consent of Party B and approval by the competent authority, Party A has carried out reconstruction or expansion on the Premise;

Post-lease Liability

Once the Lease Agreement is terminated, Party B shall move out from the Premise and return the Premise within 10 days.

Resolution of Disputes

Arbitration in Shenzhen Arbitration Commission.

Registration

The Lease Agreement shall be filed with the competent administrative authorities within 10 days from execution of the Lease Agreement.

Language

The Lease Agreement is prepared in Chinese.

EX-10.45

EXHIBIT 10.45

Shenzhen Development Bank Co., Ltd.

Contract for Comprehensive Line of Credit

Shenzhen Development Bank Co., Ltd.

Contract for Comprehensive Line of Credit

Contract #: Shen Fa Jin Xin Zong Zi No.

Party A: Xinhua Subbranch, Tianjin Branch, Shenzhen Development Bank Co., Ltd.

Add.:    No.166, Xinhua Road, Heping District, Tianjin

Tel:    23535000        Fax:

Person in charge: Jia Chun        Position: President

Party B: Pemstar (Tianjin) Enterprise Co., Ltd.

Add.:    Yat-sen Scientific Industrial Park, Tianjin, China

Tel:    82172083        Fax: 82110486

Legal Representative*: Roy A. Bauer Position*:

(*leave blank if Party B is an individual)

Whereas

Party B has applied to Party A for and Party A has agreed to grant Party B a Comprehensive Line of Credit

Now therefore the two parties now enter into this Contract through negotiation in accordance with relevant laws and regulation and both parties are willing to observe all provisions herein.

Article I Content of the Comprehensive Credit

1. Amount of Comprehensive Credit: (converted into) RMB             (in words) RMB FORTY MILLION ONLY.

2. Term of Comprehensive Line of Credit shall be 12 months from to during which the Comprehensive Line of Credit may be used cyclically for multiple times and the method of use, the amount and time limit shall be agreed between Party A and Party B each time; however, the balance of the different use of the Line shall not exceed the amount of the Comprehensive Credit.

The starting time of each business under the Line shall be within the term of the Line and whether the closing time shall be within the term of the Line shall be stipulated in the contract of the specific business.

Article II Manners of the Extension of Comprehensive Credit

The manners of the extension of comprehensive credit include without limitation:

Loan (including individual consumptive loan, individual operational loan), letter of credit, import documentary credit, packaged loan, export documentary credit, discount, acceptance, letter of guarantee, guarantee, etc.

The specific manner of extension of credit shall be decided in the specific business contracts signed between the parties.

Article III The Use of the Comprehensive Line of Credit

When Party B intends to use the Comprehensive Line of Credit, he shall apply to Party A and the parties shall signed corresponding business contract after Party A has examined and approved.

Article IV Manner of Guarantee for the Comprehensive Line of Credit (put “ü” in the box chosen)

¨ credit, not requiring Party B to provide guarantee

þ the guarantee for the Comprehensive Line of Credit shall adopt manner 4 of the following:

1.

2.

3.

4. Provide factoring service for Party B’s receivables from Motorola (China) Co., Ltd.

Article V Commitment Fee for the Comprehensive Line of Credit

Party B shall pay Party A a Comprehensive Line of Credit commitment fee of     ‰ monthly of the part of the Comprehensive Line of Credit that Party B has not applied for use.

Article VI Party A Representations and Warranties

Party A is legally qualified to sign and perform this Contract and the signing and performance of this Contract has obtained full authorization from Party A’s board of directors and any other competent authorities (if authorization is required).

Party B warrants that the application documents he submit to Party A are authentic, legal and valid, containing no major error and without omission of any major fact.

Party B warrants to give Party A notice of any change in company name, legal representative (principal), residence, scope of business, registered capital, etc. taking place during the term hereof within 10 days after such changes take place; Party B shall immediately notify Party A of any such changes takes place at the time when Party B is applying for a specific business under the Line.

Party B has fully acquainted himself with and understood the content of all the articles hereof and the signing hereof is the true indication of intention of Party B.

Article VII Special Provisions on the Credit Extension to Group Customers and Associated Transactions

I. An enterprise or undertaking as legal person having any of the following attributes:

1. directly or indirectly control any other enterprise or undertaking as legal person or controlled by any other enterprise or undertaking as legal person in terms of stocks rights or operation;

2. jointly controlled by a third enterprise or undertaking as legal person

3. directly or indirectly and jointly controlled by major individual investor, key managerial person or family members of close relation therewith (including lineal relatives within three generations and collateral relatives within two generations);

4. any other relation which may result in transfer of assets and profit not on the basis of publicly accepted prices shall be regarded as a group customer in the management of credit management.

II. Where any associated transaction more than 10% of the net assets takes place with a group customer of which Party B is a member, Party B shall provide Party A a written report stating the associated relation between the parties of the transaction and item, nature, amount, proportion of pricing policy of the transaction (including transaction without amount or with only symbolic amount) within 10 days after it takes place.

Article VIII

This Contract has been entered into under and shall be governed by the laws of the People’s Republic of China. Any disputes arising from or in connection with the performance hereof shall be settled through consultation or mediation; if no settlement can be reached through consultation or mediation, the disputes shall be settled in manner 1 of the following:

1. Institute legal proceedings in the people’s court of the place where Party A is located.

Article IX Effectiveness of the Contract (put “ü” in the box chosen)

þ As this Line of Credit is guaranteed, this Contract shall come into effect only when the following conditions are simultaneously met:

1. This Contract has been signed and affixed seals by both parties;

2. The related guarantee contract (containing “guarantee money” clause and “warranty of guarantee” clause) has been signed and the necessary registration formalities have been completed.

Article X Other Matters Agreed between the Parties: __________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

Article XI

This Contract is made in triplicate having equal legal effect, of which Party A holds two and Party B holds one.

Seal of Party A: Xinhua Subbranch, Tianjin Branch, Shenzhen Development Bank Co., Ltd.

Signature of person in charge or proxy:

Seal of Party B: Pemstar (Tianjin) Enterprise Co., Ltd.

Signature of legal representative or proxy:

Sub-document 5(1)

FACTORING APPROVAL DOCUMENT

Agreement number: 20060222001-2

To: Pemstar Tianjin Enterprise Co,.Ltd

After audit, we agree to accept the above mentioned entity’s Accounts Receivable pledge. The below table is the agreed detailed listing of the Accounts Receivable (AR).

No.	Customer	Contract Number	Contract Amount	Paid	Advance	Discount	AR Amount	Method of payment	Amount paid for AR pledge	Contract expiry	Remark
	MTC	RI112890
		RI112891
		RI114180
		RI114183
		RI110903
Total							US$6274360.40

• Our bank will provide your company RMB 40,000,000.00, the commencement date as 22 Feb 2006 and expiry date as 22 Apr 2006.

• Our bank will reserve all rights on liability.

• Bank charges will be charged at RMB100,389.76

• For all remittance, your company has to go to Tianjin branch XinHua Sub-branch to submit the following factoring approval document.

Approving bank (stamp)

Legal Representative:

Date:

Selling party: Our company has received agreement number: 20060222001-02 (Agreement number) (Factoring Agreement) has agreed to the above statement and guarantee              (China Banking Agreement) to fulfill the relevant responsibilities.

Selling party (stamp)

Legal Representative:

Date:

EX-10.46

EXHIBIT 10.46

Shenzhen Development Bank Co., Ltd.

Contract for Comprehensive Line of Credit

Shenzhen Development Bank Co., Ltd.

Contract for Comprehensive Line of Credit

Contract #: Shen Fa Jin Xin Zong Zi No.

Party A: Xinhua Subbranch, Tianjin Branch, Shenzhen Development Bank Co., Ltd.

Add.:    No.166, Xinhua Road, Heping District, Tianjin

Tel:    23535000        Fax:

Person in charge: Jia Chun        Position: President

Party B:    Pemstar (Tianjin) Enterprise Co., Ltd.

Add.: Yat-sen Scientific Industrial Park, Tianjin, China

Tel:    82172083        Fax: 82110486

Legal Representative*: Roy. A. Bauer Position*:

(*leave blank if Party B is an individual)

Whereas

Party B has applied to Party A for and Party A has agreed to grant Party B a Comprehensive Line of Credit

Now therefore the two parties now enter into this Contract through negotiation in accordance with relevant laws and regulation and both parties are willing to observe all provisions herein.

Article I Content of the Comprehensive Credit

1. Amount of Comprehensive Credit: (converted into) RMB            (in words) RMB SIXTY MILLION ONLY.

2. Term of Comprehensive Line of Credit shall be 12 months from to during which the Comprehensive Line of Credit may be used cyclically for multiple times and the method of use, the amount and time limit shall be agreed between Party A and Party B each time; however, the balance of the different use of the Line shall not exceed the amount of the Comprehensive Credit.

The starting time of each business under the Line shall be within the term of the Line and whether the closing time shall be within the term of the Line shall be stipulated in the contract of the specific business.

Article II Manners of the Extension of Comprehensive Credit

The manners of the extension of comprehensive credit include without limitation:

Loan (including individual consumptive loan, individual operational loan), letter of credit, import documentary credit, packaged loan, export documentary credit, discount, acceptance, letter of guarantee, guarantee, etc.

The specific manner of extension of credit shall be decided in the specific business contracts signed between the parties.

Article III The Use of the Comprehensive Line of Credit

When Party B intends to use the Comprehensive Line of Credit, he shall apply to Party A and the parties shall signed corresponding business contract after Party A has examined and approved.

Article IV Manner of Guarantee for the Comprehensive Line of Credit (put “ü“ in the box chosen)

¨  credit, not requiring Party B to provide guarantee

þ  the guarantee for the Comprehensive Line of Credit shall adopt manner 4 of the following:

1.

2.

3.

4. Provide factoring service for Party B’s receivables from Motorola (China) Co., Ltd.

Article V Commitment Fee for the Comprehensive Line of Credit

Party B shall pay Party A a Comprehensive Line of Credit commitment fee of     ‰ monthly of the part of the Comprehensive Line of Credit that Party B has not applied for use.

Article VI Party A Representations and Warranties

Party A is legally qualified to sign and perform this Contract and the signing and performance of this Contract has obtained full authorization from Party A’s board of directors and any other competent authorities (if authorization is required).

Party B warrants that the application documents he submit to Party A are authentic, legal and valid, containing no major error and without omission of any major fact.

Party B warrants to give Party A notice of any change in company name, legal representative (principal), residence, scope of business, registered capital, etc. taking place during the term hereof within 10 days after such changes take place; Party B shall immediately notify Party A of any such changes takes place at the time when Party B is applying for a specific business under the Line.

Party B has fully acquainted himself with and understood the content of all the articles hereof and the signing hereof is the true indication of intention of Party B.

Article VII Special Provisions on the Credit Extension to Group Customers and Associated Transactions

I. An enterprise or undertaking as legal person having any of the following attributes:

1. directly or indirectly control any other enterprise or undertaking as legal person or controlled by any other enterprise or undertaking as legal person in terms of stocks rights or operation;

2. jointly controlled by a third enterprise or undertaking as legal person

3. directly or indirectly and jointly controlled by major individual investor, key managerial person or family members of close relation therewith (including lineal relatives within three generations and collateral relatives within two generations);

4. any other relation which may result in transfer of assets and profit not on the basis of publicly accepted prices shall be regarded as a group customer in the management of credit management.

II. Where any associated transaction more than 10% of the net assets takes place with a group customer of which Party B is a member, Party B shall provide Party A a written report stating the associated relation between the parties of the transaction and item, nature, amount, proportion of pricing policy of the transaction (including transaction without amount or with only symbolic amount) within 10 days after it takes place.

Article VIII

This Contract has been entered into under and shall be governed by the laws of the People’s Republic of China. Any disputes arising from or in connection with the performance hereof shall be settled through consultation or mediation; if no settlement can be reached through consultation or mediation, the disputes shall be settled in manner 1 of the following:

1. Institute legal proceedings in the people’s court of the place where Party A is located.

Article IX Effectiveness of the Contract (put “ü“ in the box chosen)

þ As this Line of Credit is guaranteed, this Contract shall come into effect only when the following conditions are simultaneously met:

1. This Contract has been signed and affixed seals by both parties;

2. The related guarantee contract (containing “guarantee money” clause and “warranty of guarantee” clause) has been signed and the necessary registration formalities have been completed.

Article X Other Matters Agreed between the Parties: __________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

Article XI

This Contract is made in triplicate having equal legal effect, of which Party A holds two and Party B holds one.

Seal of Party A: Xinhua Subbranch, Tianjin Branch, Shenzhen Development Bank Co., Ltd.

Signature of person in charge or proxy:

Seal of Party B: Pemstar (Tianjin) Enterprise Co., Ltd.

Signature of legal representative or proxy:

Sub-document 5(1)

FACTORING APPROVAL DOCUMENT

Agreement number: 20060306001-2

To: Pemstar Tianjin Enterprise Co,.Ltd

After audit, we agree to accept the above mentioned entity’s Accounts Receivable pledge. The below table is the agreed detailed listing of the Accounts Receivable (AR).

No.	Customer	Contract Number	Contract Amount	Paid	Advance	Discount	AR Amount	Method of payment	Amount paid for AR pledge	Contract expiry	Remark
	MOTOROLA	IW183947
	CHINA	IW183880
		IW179829
		IW185128
		IW185130
		IW185131
Total		IW186211					RMB37538455.59

• Our bank will provide your company RMB 30,000,000.00, the commencement date as 06 Mar 2006 and expiry date as 06 May 2006.

• Our bank will reserve all rights on liability.

• Bank charges will be charged at RMB75,076.91

• For all remittance, your company has to go to Tianjin branch XinHua Sub-branch to submit the following factoring approval document.

Approving bank (stamp)

Legal Representative:

Date:

Selling party: Our company has received agreement number: 20060306001-2 (Agreement number) (Factoring Agreement) has agreed to the above statement and guarantee             (China Banking Agreement) to fulfill the relevant responsibilities.

Selling party (stamp)

Legal Representative:

Date:

Sub-document 5(1)

FACTORING APPROVAL DOCUMENT

Agreement number: 20060222002-2

To: Pemstar Tianjin Enterprise Co,.Ltd

After audit, we agree to accept the above mentioned entity’s Accounts Receivable pledge. The below table is the agreed detailed listing of the Accounts Receivable (AR).

No.	Customer	Contract Number	Contract Amount	Paid	Advance	Discount	AR Amount	Method of payment	Amount paid for AR pledge	Contract expiry	Remark
	MTC	RI112890
		RI112891
		RI112900
		RI112902
		RI113010
		RI113225
Total							US$4,899,294.53

• Our bank will provide your company RMB 30,000,000.00, the commencement date as 22 Feb 2006 and expiry date as 22 Apr 2006.

• Our bank will reserve all rights on liability.

• Bank charges will be charged at RMB78,388.71

• For all remittance, your company has to go to Tianjin branch XinHua Sub-branch to submit the following factoring approval document.

Approving bank (stamp)

Legal Representative:

Date:

Selling party: Our company has received agreement number: 20060222002-02 (Agreement number) (Factoring Agreement) has agreed to the above statement and guarantee             (China Banking Agreement) to fulfill the relevant responsibilities.

Selling party (stamp)
Legal Representative:
	Date:

EX-10.47

EXHIBIT 10.47

CONTRACT FOR SHORT TERM LOAN

(Applicable to Credit Extension Operation)

XingJin(LiuDong)20050446

INDUSTRIAL BANK CO., LTD.

TIANJIN BRANCH

INDUSTRIAL BANK CO., LTD.

Contract for Short Term Loan

(Applicable to Credit Extension Operation)

No.:

Accreditor:	Tianjin Branch, Industrial Bank Co., Ltd.
Mail Address:	Senmiao Commercial Plaza, Wujiayao Street, Hexi District, Tianjin
Postcode:		Telex:
	________________
Tel:		Fax:
	________________
Accreditee:	Pemstar (Tianjin) Enterprise Co., Ltd.
Mail Address:	Yat-Sen Scientific & Industrial Park, Wuqing Development Area, Tianjin
Postcode:		Telex:
	________________
Tel:		Fax:
	________________

Signed at: Hexi District, Tianjin

Whereas the Borrower (or the Accreditee) has applied for a short term loan with the Loaner due to the need of production and operation and the Loaner (or the Accreditee) agrees to extension such loan, the two parties has entered into this Contract for mutual observance through negotiation on the basis of equality and in compliance with the relevant laws and regulations of the country in order to clarify respective liabilities and to stand by credit.

Article I Master Contract

This Contract is a subcontract under the “Industrial Bank Co., Ltd., Basic Credit Extension Contract” (or the Master Contract) numbered with the line of credit being, as converted into Renminbi, RMB 100 million and term of validity of credit extension from Feb-23-2005 to Feb-22-2006. The amount of this loan shall be counted into the line of credit.

Article II Amount of the Loan

The Loaner agrees to extend the Borrower a loan RMB twenty million only.

Article III The Purpose of the Loan

The Loan shall be used for purchasing raw materials.

Article IV The Term of the Loan

I. The term of the Loan shall be 12 months from May-12-2005 to May-11-2006.

II. The actual put-out date carried on the receipt of the loan shall be the date of loan.

III. The plan for the use of the Loan in installments shall be:

RMB         on             ; RMB        on             ;

RMB         on             ; RMB        on             ;

RMB         on             ; RMB        on             ;

Article V Interest Rate and Calculation and Collection of Interest

I. Through consultation between the Parties, it is agreed that the interest for this Loan shall be calculated and collected in manner (A) of the following:

(A) The interest shall be calculated at a fixed interest rate of 5.58% per annum not to be adjusted with eventual adjustment of interest rate by the state;

II. Through consultation, the Parties agree to calculate the interest in manner (B) of the following:

(A) (Translation omitted.)

(B) The interest shall be calculated quarterly and the 20^th day of the last month of a quarter shall be the date of interest settlement; the Borrower shall pay the Loaner the interests of the Loan on a quarterly basis. The remaining interest shall be paid up on the date of maturity of the Loan.

(C)

Article VI Penalty Interest and Compound Interest

I. In case the Borrower fails to use the any part of the Loan under the purpose of the Loan agreed in this Contract, or in case the Borrower fails to repay the Loan and fails to reach an agreement for the extension of the time limit for the payment (that is, the Borrower has constituted an overdue of loan), the Loaner shall be entitled to collect a penalty interest at the penalty interest rate specified herein on the part of the Loan being diverted use of or overdue. Where the Borrower fails to pay any interest, the Loaner is entitled to collect a compound interest at the penalty rate specified herein.

II. In case the Borrower fails to repay the Loan and fails to reach an agreement for the extension of the time limit for the payment (that is, the Borrower has constituted an overdue of loan), the penalty interest rate shall be A of the following:

(A) The interest on the Loan hereunder shall be calculated at a fixed interest rate, and penalty interest and compound interest shall also be calculated at a fixed rate for overdue period. The penalty interest rate shall be 30% in addition to the interest rate of the Loan;

(B) (translation omitted)

III. In case the Borrower fails to use the any part of the Loan under the purpose of the Loan agreed in this Contract, that is, in case of diversion of the use of the Loan, the penalty interest rate shall be A of the following:

(A) The interest on the Loan hereunder shall be calculated at a fixed interest rate, and penalty interest and compound interest shall also be calculated at a fixed rate for period of diversion of the use of Loan. The penalty interest rate shall be 50% in addition to the interest rate of the Loan;

(B) (translation omitted)

VI. The compound interest shall be calculate and collected in accordance with the provisions hereof.

Article VII The Repayment of the Principal and Interest of the Loan

I. The Borrower shall pay the principal and interest according to the schedule stipulated herein.

II. In case the Borrower wishes to pay the Loan ahead of schedule, he shall notify the Loaner in advance and obtain consent from same. Where the Borrower pays the Loan ahead of schedule, the Loaner shall have the right to collect interest per the stipulated term of the Loan from the Borrower.

III. Where the Loan hereunder is in a foreign currency, the Borrower shall pay the principal and interest in the same foreign currency.

IV. The Borrower hereby irrevocably authorizes the Loaner to deduct directly from the Borrower’s account for collecting the principal and interest without going through any legal process in case any event as stipulated in Article X and Article XI happens.

Article VIII Guarantee

I. The following contracts are the guarantee contract hereof:

1. “                    ” (title of contract) numbered              with Guarantor being                      and manner of guaranty being                     ;

2. “                    ” (title of contract) numbered              with Guarantor being                      and manner of guaranty being                     ;

3. “                    ” (title of contract) numbered              with Guarantor being                      and manner of guaranty being                     ;

Article IX Representations and Waranties

I. The Borrower hereby represents and warranties to the Loaner as follows:

(I) The Borrower is a duly registered enterprise as legal person and will validly exist during the term of the Loan and has the power to sign and perform this Contract.

(II) The Loan that the Borrower borrows hereunder has obtained the authorization of his board of directors or equivalent top leadership and is not in violation of ay laws, regulations, policies or articles of association pertaining to the Borrower.

(III) The Borrower has no mortgage, pledge, pawn or any other debt burdens on his assets or profit except for those indicated in the documents that he has submitted to the Loaner, and has no pending lawsuits, arbitration or bankruptcy proceedings.

(IV) The Borrower shall not conceal from the Loaner any of the following events that has happened or will happen which may lead to the Loaner’s objection to extending the Loan hereunder:

1. Gross violation against discipline or law involving the Borrower or any of his major leaders;

2. Pending lawsuit, arbitration events;

3. Any obligations that he has or has undertaken or any guarantee, pledge, mortgage that he has provided to a third party;

4. Events of breach by the Borrower under any contract with other creditors;

5. Any other situations that may influence Borrower’s financial status and solvency.

II. The Borrower hereby warrants to the Loaner as follows:

(I) to provide true documents, reports and statements and vouchers as required;

(II) to open an account for settlement at the Loaner and to settle accounts through that account;

(III) to use the Loan in accordance with the purpose stipulated herein without diverting its use to any other purpose including investment in equity capital; not to use the Loan in illegal speculative trading of securities, futures or in real estate; not to use the Loan in mutual loan between enterprises or other illegal activities forbidden by the Government; not to appropriate or divert the use of the Loan in any other manners.

(IV) to accept and assist the Loaner’s supervision and inspection from time to time on the Borrower’s use of the Loan and the Borrower’s production, operation, financial activities, inventory, assets and liabilities, bank deposits, cash on hand, etc.

(V) to provide full amount of valid guarantee recognized by the Loaner;

(VI) not to reduce his registered capital in any manner;

(VII) not to assign the whole or part of his liabilities hereunder to a third party without the Loaner’s written consent;

(VIII) In the event that Borrower intends to make any reduction to his registered capital or make major change in property right or make any adjustment in pattern of operation (including but not limited to such changes to the pattern of operation as entering into joint venture or cooperation with foreign business; schism, merger, annexation, being annexed; reorganization, organized or reorganized into a joint-stock company; lease, undertaking of works, pooling, trusteeship, etc.), he shall notify Lender in advance. Should the above actions expose adverse impact on Borrower’s solvency, Borrower shall obtain Lender’s consent before taking such actions.

Article X Premature Withdrawal of the Loan

The Loaner shall be entitled to withdraw the Loan prior to the expiration of its term in case any of the following occurs with the Borrower and to deduct directly from any account of the Borrower.

(I) Debit interest has occurred on the Loan;

(II) The Borrower has incurred loss in operation or abrupt fall in economic performance;

(III) The Borrower is or will be involved in any lawsuit, arbitration or any other legal disputes;

(IV) The Borrower has provided false reports and data;

(V) The Borrower has diverted the use of the Loan for any other purpose (that is, the Borrower is not using the Loan in the stipulated purpose.)

(VI) The Borrower refuses the Loaner to supervise and inspect his operation, financial status, etc. or refuses to provide relevant reports or data;

(VII) Major personnel change has taken place with the Borrower;

(VIII) Any other matters that may harm the security of the Loan.

Article XI Liabilities for Breach of the Contract

I. The Borrower shall constitute a breach if any of the following occurs:

(I) The Borrower fails to pay the principal and interest as scheduled herein;

(II) The Borrower has acted against his representations and warranties in Article IX hereof;

(III) The Borrower has acted against any other provisions hereof.

II. Upon Borrower’s breach, the Loaner shall have the right to take one or more of the following actions:

(I) To require the Borrower to correct the breach in a defined time;

(II) To stop the Borrower’s draw down;

(III) To terminate this Contract and to require the Borrower to pay up mature or premature principal and the interest;

(IV) To require the Borrow to pay the overdue penalty interest if the Loan has exceeded its term;

(V) To require the Borrower to pay penalty interest for diversion of use of the Loan if the Borrower has so acted;

(VI) To require the Borrower to pay the compound interest for overdue interest;

(VII) To deduct and collect the amount of the due principal and interest from any of the Borrower’s accounts. Where the currency on the Borrower’s account is different from that of the Loan, the Loaner shall have the right to liquidate the Loan by converting it into the currency of the Loan at the exchange rate publicized on the date of the liquidation.

(VIII) To recourse the principal and interest of the Loan by legal means, with all expenses arising from the legal action to be on the Borrower’s account.

III. The Loaner shall pay for any loss caused on the Borrower by the Loaner’s failure to provide the Loan in accordance with the dates and amounts stipulated herein.

IV. In case any of the following occurs to the Guarantor (or Warantor, Pledgor or Pawner) hereunder, the Loaner shall have the right to take actions in accordance with the foregoing provisions herein:

(I) The Guarantor is in breach of the provisions of the Maximum Line Guarantee Contract, or his credit status is deteriorated or any other event that may weaken the capacity of guarantee happens;

(II) The Mortgagor is in breach of the provisions of the Maximum Line Guarantee Contract, or intentionally causes damage or destroys the object of mortgage or the value of the object of mortgage may be remarkably reduced or any other situation that may affect the mortgage rights of the Accreditor occurs;

(III) The Pledgor is in breach of the provisions of the Maximum Line Guarantee Contract, or the value of the object of pledge may be remarkably reduced or the pledge right must be discounted ahead in advance or any other situation that may affect the mortgage rights of the Accreditor occurs.

Article XII Jurisdiction

The execution, validity, interpretation and performance of this Contract shall be governed by the laws of the People’s Republic of China. Any and all disputes arising from the performance of or in connection with this Contract shall be settled through friendly negotiations between the two Parties or submitted to the local people’s court at the Loaner’s location.

Article XIII Term of Effectiveness

This Contract shall come into effect when the following conditions are met:

(I) Both Parties hereto have signed hereon;

(II) Where this Contract is guaranteed, the guarantee or mortgage or pledge contract has come into effect;

(III) Where the Loaner requests notarization on this Contract, the procedures of such notarization has been completed.

This Contract shall automatically become invalid upon clearance of the principal and interest of the Loan and all other liabilities hereunder.

Article XIV Copies

This Contract is executed in three original copies of which the Parties hereto and the notarization organization shall respectively hold one. The duplicate copies may be amended according to situation.

Article XV Supplementary Article

The Borrower and the Loaner have agreed through consultation that the account that the Borrower shall open at the Loaner after the Loaner has extended the loan to the Borrower shall carry a deposit not less than the interest of the Loan for the current period for the payment of the interest.

The Loaner (Official Seal): Tianjin Branch, Industrial Bank Co., Ltd.

Legal representative of proxy (signature):

The Borrower (Official Seal): Pemstar (Tianjin) Enterprise Co., Ltd.

Legal representative of proxy (signature):

EX-10.48

EXHIBIT 10.48

CONTRACT FOR SHORT TERM LOAN

(Applicable to Credit Extension Operation)

XingJin(LiuDong)20050480

INDUSTRIAL BANK CO., LTD.

TIANJIN BRANCH

INDUSTRIAL BANK CO., LTD.

Contract for Short Term Loan

(Applicable to Credit Extension Operation)

No.:

Accreditor:	Tianjin Branch, Industrial Bank Co., Ltd.
Mail Address:	Senmiao Commercial Plaza, Wujiayao Street, Hexi District, Tianjin
Postcode:		Telex:
	________________
Tel:		Fax:
	________________
Accreditee:	Pemstar (Tianjin) Enterprise Co., Ltd.
Mail Address:	Yat-Sen Scientific & Industrial Park, Wuqing Development Area, Tianjin
Postcode:		Telex:
	________________
Tel:		Fax:
	________________

Signed at: Hexi District, Tianjin

Whereas the Borrower (or the Accreditee) has applied for a short term loan with the Loaner due to the need of production and operation and the Loaner (or the Accreditee) agrees to extension such loan, the two parties has entered into this Contract for mutual observance through negotiation on the basis of equality and in compliance with the relevant laws and regulations of the country in order to clarify respective liabilities and to stand by credit.

Article I Master Contract

This Contract is a subcontract under the “Industrial Bank Co., Ltd., Basic Credit Extension Contract” (or the Master Contract) numbered with the line of credit being, as converted into Renminbi, RMB 100 million and term of validity of credit extension from Feb-23-2005 to Feb-22-2006. The amount of this loan shall be counted into the line of credit.

Article II Amount of the Loan

The Loaner agrees to extend the Borrower a loan RMB twenty million only.

Article III The Purpose of the Loan

The Loan shall be used for purchasing raw materials.

Article IV The Term of the Loan

I. The term of the Loan shall be 12 months from May-20-2005 to May-19-2006.

II. The actual put-out date carried on the receipt of the loan shall be the date of loan.

III. The plan for the use of the Loan in installments shall be:

RMB         on             ; RMB        on             ;

RMB         on             ; RMB        on             ;

RMB         on             ; RMB        on             ;

Article V Interest Rate and Calculation and Collection of Interest

I. Through consultation between the Parties, it is agreed that the interest for this Loan shall be calculated and collected in manner (A) of the following:

(A) The interest shall be calculated at a fixed interest rate of 5.58% per annum not to be adjusted with eventual adjustment of interest rate by the state;

II. Through consultation, the Parties agree to calculate the interest in manner (B) of the following:

(A) (Translation omitted.)

(B) The interest shall be calculated quarterly and the 20^th day of the last month of a quarter shall be the date of interest settlement; the Borrower shall pay the Loaner the interests of the Loan on a quarterly basis. The remaining interest shall be paid up on the date of maturity of the Loan.

(C)

Article VI Penalty Interest and Compound Interest

I. In case the Borrower fails to use the any part of the Loan under the purpose of the Loan agreed in this Contract, or in case the Borrower fails to repay the Loan and fails to reach an agreement for the extension of the time limit for the payment (that is, the Borrower has constituted an overdue of loan), the Loaner shall be entitled to collect a penalty interest at the penalty interest rate specified herein on the part of the Loan being diverted use of or overdue. Where the Borrower fails to pay any interest, the Loaner is entitled to collect a compound interest at the penalty rate specified herein.

II. In case the Borrower fails to repay the Loan and fails to reach an agreement for the extension of the time limit for the payment (that is, the Borrower has constituted an overdue of loan), the penalty interest rate shall be A of the following:

(A) The interest on the Loan hereunder shall be calculated at a fixed interest rate, and penalty interest and compound interest shall also be calculated at a fixed rate for overdue period. The penalty interest rate shall be 30% in addition to the interest rate of the Loan;

(B) (translation omitted)

III. In case the Borrower fails to use the any part of the Loan under the purpose of the Loan agreed in this Contract, that is, in case of diversion of the use of the Loan, the penalty interest rate shall be A of the following:

(A) The interest on the Loan hereunder shall be calculated at a fixed interest rate, and penalty interest and compound interest shall also be calculated at a fixed rate for period of diversion of the use of Loan. The penalty interest rate shall be 50% in addition to the interest rate of the Loan;

(B) (translation omitted)

VI. The compound interest shall be calculate and collected in accordance with the provisions hereof.

Article VII The Repayment of the Principal and Interest of the Loan

I. The Borrower shall pay the principal and interest according to the schedule stipulated herein.

II. In case the Borrower wishes to pay the Loan ahead of schedule, he shall notify the Loaner in advance and obtain consent from same. Where the Borrower pays the Loan ahead of schedule, the Loaner shall have the right to collect interest per the stipulated term of the Loan from the Borrower.

III. Where the Loan hereunder is in a foreign currency, the Borrower shall pay the principal and interest in the same foreign currency.

IV. The Borrower hereby irrevocably authorizes the Loaner to deduct directly from the Borrower’s account for collecting the principal and interest without going through any legal process in case any event as stipulated in Article X and Article XI happens.

Article VIII Guarantee

I. The following contracts are the guarantee contract hereof:

1. “                    ” (title of contract) numbered              with Guarantor being                      and manner of guaranty being                     ;

2. “                    ” (title of contract) numbered              with Guarantor being                      and manner of guaranty being                     ;

3. “                    ” (title of contract) numbered              with Guarantor being                      and manner of guaranty being                     ;

Article IX Representations and Waranties

I. The Borrower hereby represents and warranties to the Loaner as follows:

(I) The Borrower is a duly registered enterprise as legal person and will validly exist during the term of the Loan and has the power to sign and perform this Contract.

(II) The Loan that the Borrower borrows hereunder has obtained the authorization of his board of directors or equivalent top leadership and is not in violation of ay laws, regulations, policies or articles of association pertaining to the Borrower.

(III) The Borrower has no mortgage, pledge, pawn or any other debt burdens on his assets or profit except for those indicated in the documents that he has submitted to the Loaner, and has no pending lawsuits, arbitration or bankruptcy proceedings.

(IV) The Borrower shall not conceal from the Loaner any of the following events that has happened or will happen which may lead to the Loaner’s objection to extending the Loan hereunder:

1. Gross violation against discipline or law involving the Borrower or any of his major leaders;

2. Pending lawsuit, arbitration events;

3. Any obligations that he has or has undertaken or any guarantee, pledge, mortgage that he has provided to a third party;

4. Events of breach by the Borrower under any contract with other creditors;

5. Any other situations that may influence Borrower’s financial status and solvency.

II. The Borrower hereby warrants to the Loaner as follows:

I. to provide true documents, reports and statements and vouchers as required;

II. to open an account for settlement at the Loaner and to settle accounts through that account;

III. to use the Loan in accordance with the purpose stipulated herein without diverting its use to any other purpose including investment in equity capital; not to use the Loan in illegal speculative trading of securities, futures or in real estate; not to use the Loan in mutual loan between enterprises or other illegal activities forbidden by the Government; not to appropriate or divert the use of the Loan in any other manners.

IV. to accept and assist the Loaner’s supervision and inspection from time to time on the Borrower’s use of the Loan and the Borrower’s production, operation, financial activities, inventory, assets and liabilities, bank deposits, cash on hand, etc.

V. to provide full amount of valid guarantee recognized by the Loaner;

VI. not to reduce his registered capital in any manner;

VII. not to assign the whole or part of his liabilities hereunder to a third party without the Loaner’s written consent;

VIII. In the event that Borrower intends to make any reduction to his registered capital or make major change in property right or make any adjustment in pattern of operation (including but not limited to such changes to the pattern of operation as entering into joint venture or cooperation with foreign business; schism, merger, annexation, being annexed; reorganization, organized or reorganized into a joint-stock company; lease, undertaking of works, pooling, trusteeship, etc.), he shall notify Lender in advance. Should the above actions expose adverse impact on Borrower’s solvency, Borrower shall obtain Lender’s consent before taking such actions.

Article X Premature Withdrawal of the Loan

The Loaner shall be entitled to withdraw the Loan prior to the expiration of its term in case any of the following occurs with the Borrower and to deduct directly from any account of the Borrower.

(I) Debit interest has occurred on the Loan;

(II) The Borrower has incurred loss in operation or abrupt fall in economic performance;

(III) The Borrower is or will be involved in any lawsuit, arbitration or any other legal disputes;

(IV) The Borrower has provided false reports and data;

(V) The Borrower has diverted the use of the Loan for any other purpose (that is, the Borrower is not using the Loan in the stipulated purpose.)

(VI) The Borrower refuses the Loaner to supervise and inspect his operation, financial status, etc. or refuses to provide relevant reports or data;

(VII) Major personnel change has taken place with the Borrower;

(VIII) Any other matters that may harm the security of the Loan.

Article XI Liabilities for Breach of the Contract

I. The Borrower shall constitute a breach if any of the following occurs:

(I) The Borrower fails to pay the principal and interest as scheduled herein;

(II) The Borrower has acted against his representations and warranties in Article IX hereof;

(III) The Borrower has acted against any other provisions hereof.

II. Upon Borrower’s breach, the Loaner shall have the right to take one or more of the following actions:

(I) To require the Borrower to correct the breach in a defined time;

(II) To stop the Borrower’s draw down;

(III) To terminate this Contract and to require the Borrower to pay up mature or premature principal and the interest;

(IV) To require the Borrow to pay the overdue penalty interest if the Loan has exceeded its term;

(V) To require the Borrower to pay penalty interest for diversion of use of the Loan if the Borrower has so acted;

(VI) To require the Borrower to pay the compound interest for overdue interest;

(VII) To deduct and collect the amount of the due principal and interest from any of the Borrower’s accounts. Where the currency on the Borrower’s account is different from that of the Loan, the Loaner shall have the right to liquidate the Loan by converting it into the currency of the Loan at the exchange rate publicized on the date of the liquidation.

(VIII) To recourse the principal and interest of the Loan by legal means, with all expenses arising from the legal action to be on the Borrower’s account.

III. The Loaner shall pay for any loss caused on the Borrower by the Loaner’s failure to provide the Loan in accordance with the dates and amounts stipulated herein.

IV. In case any of the following occurs to the Guarantor (or Warantor, Pledgor or Pawner) hereunder, the Loaner shall have the right to take actions in accordance with the foregoing provisions herein:

(I) The Guarantor is in breach of the provisions of the Maximum Line Guarantee Contract, or his credit status is deteriorated or any other event that may weaken the capacity of guarantee happens;

(II) The Mortgagor is in breach of the provisions of the Maximum Line Guarantee Contract, or intentionally causes damage or destroys the object of mortgage or the value of the object of mortgage may be remarkably reduced or any other situation that may affect the mortgage rights of the Accreditor occurs;

(III) The Pledgor is in breach of the provisions of the Maximum Line Guarantee Contract, or the value of the object of pledge may be remarkably reduced or the pledge right must be discounted ahead in advance or any other situation that may affect the mortgage rights of the Accreditor occurs.

Article XII Jurisdiction

The execution, validity, interpretation and performance of this Contract shall be governed by the laws of the People’s Republic of China. Any and all disputes arising from the performance of or in connection with this Contract shall be settled through friendly negotiations between the two Parties or submitted to the local people’s court at the Loaner’s location.

Article XIII Term of Effectiveness

This Contract shall come into effect when the following conditions are met:

(I) Both Parties hereto have signed hereon;

(II) Where this Contract is guaranteed, the guarantee or mortgage or pledge contract has come into effect;

(III) Where the Loaner requests notarization on this Contract, the procedures of such notarization has been completed.

This Contract shall automatically become invalid upon clearance of the principal and interest of the Loan and all other liabilities hereunder.

Article XIV Copies

This Contract is executed in three original copies of which the Parties hereto and the notarization organization shall respectively hold one. The duplicate copies may be amended according to situation.

Article XV Supplementary Article

The Borrower and the Loaner have agreed through consultation that the account that the Borrower shall open at the Loaner after the Loaner has extended the loan to the Borrower shall carry a deposit not less than the interest of the Loan for the current period for the payment of the interest.

The Loaner (Official Seal): Tianjin Branch, Industrial Bank Co., Ltd.

Legal representative of proxy (signature):

The Borrower (Official Seal): Pemstar (Tianjin) Enterprise Co., Ltd.

Legal representative of proxy (signature):

EX-10.49

EXHIBIT 10.49

CONTRACT FOR SHORT TERM LOAN

(Applicable to Credit Extension Operation)

XingJin(LiuDong)20050875

INDUSTRIAL BANK CO., LTD.

TIANJIN BRANCH

INDUSTRIAL BANK CO., LTD.

Contract for Short Term Loan

(Applicable to Credit Extension Operation)

No.:

Accreditor:	Tianjin Branch, Industrial Bank Co., Ltd.
Mail Address:	Senmiao Commercial Plaza, Wujiayao Street, Hexi District, Tianjin
Postcode:		Telex:
	________________
Tel:		Fax:
	________________
Accreditee:	Pemstar (Tianjin) Enterprise Co., Ltd.
Mail Address:	Yat-Sen Scientific & Industrial Park, Wuqing Development Area, Tianjin
Postcode:		Telex:
	________________
Tel:		Fax:
	________________

Signed at: Hexi District, Tianjin

Whereas the Borrower (or the Accreditee) has applied for a short term loan with the Loaner due to the need of production and operation and the Loaner (or the Accreditee) agrees to extension such loan, the two parties has entered into this Contract for mutual observance through negotiation on the basis of equality and in compliance with the relevant laws and regulations of the country in order to clarify respective liabilities and to stand by credit.

Article I Master Contract

This Contract is a subcontract under the “Industrial Bank Co., Ltd., Basic Credit Extension Contract” (or the Master Contract) numbered with the line of credit being, as converted into Renminbi, RMB 100 million and term of validity of credit extension from Feb-23-2005 to Feb-22-2006. The amount of this loan shall be counted into the line of credit.

Article II Amount of the Loan

The Loaner agrees to extend the Borrower a loan RMB Fifteen million only.

Article III The Purpose of the Loan

The Loan shall be used for purchasing raw materials.

Article IV The Term of the Loan

I. The term of the Loan shall be 12 months from July-18-2005 to July-17-2006.

II. The actual put-out date carried on the receipt of the loan shall be the date of loan.

III. The plan for the use of the Loan in installments shall be:

RMB          on             ; RMB          on             ;

RMB          on             ; RMB          on             ;

RMB          on             ; RMB          on             ;

Article V Interest Rate and Calculation and Collection of Interest

I. Through consultation between the Parties, it is agreed that the interest for this Loan shall be calculated and collected in manner (A) of the following:

(A) The interest shall be calculated at a fixed interest rate of 5.58% per annum not to be adjusted with eventual adjustment of interest rate by the state;

II. Through consultation, the Parties agree to calculate the interest in manner (B) of the following:

(A) (Translation omitted.)

(B) The interest shall be calculated quarterly and the 20^th day of the last month of a quarter shall be the date of interest settlement; the Borrower shall pay the Loaner the interests of the Loan on a quarterly basis. The remaining interest shall be paid up on the date of maturity of the Loan.

(C)

Article VI Penalty Interest and Compound Interest

I. In case the Borrower fails to use the any part of the Loan under the purpose of the Loan agreed in this Contract, or in case the Borrower fails to repay the Loan and fails to reach an agreement for the extension of the time limit for the payment (that is, the Borrower has constituted an overdue of loan), the Loaner shall be entitled to collect a penalty interest at the penalty interest rate specified herein on the part of the Loan being diverted use of or overdue. Where the Borrower fails to pay any interest, the Loaner is entitled to collect a compound interest at the penalty rate specified herein.

II. In case the Borrower fails to repay the Loan and fails to reach an agreement for the extension of the time limit for the payment (that is, the Borrower has constituted an overdue of loan), the penalty interest rate shall be A of the following:

(A) The interest on the Loan hereunder shall be calculated at a fixed interest rate, and penalty interest and compound interest shall also be calculated at a fixed rate for overdue period. The penalty interest rate shall be 30% in addition to the interest rate of the Loan;

(B) (translation omitted)

III. In case the Borrower fails to use the any part of the Loan under the purpose of the Loan agreed in this Contract, that is, in case of diversion of the use of the Loan, the penalty interest rate shall be A of the following:

(A) The interest on the Loan hereunder shall be calculated at a fixed interest rate, and penalty interest and compound interest shall also be calculated at a fixed rate for period of diversion of the use of Loan. The penalty interest rate shall be 50% in addition to the interest rate of the Loan;

(B) (translation omitted)

VI. The compound interest shall be calculate and collected in accordance with the provisions hereof.

Article VII The Repayment of the Principal and Interest of the Loan

I. The Borrower shall pay the principal and interest according to the schedule stipulated herein.

II. In case the Borrower wishes to pay the Loan ahead of schedule, he shall notify the Loaner in advance and obtain consent from same. Where the Borrower pays the Loan ahead of schedule, the Loaner shall have the right to collect interest per the stipulated term of the Loan from the Borrower.

III. Where the Loan hereunder is in a foreign currency, the Borrower shall pay the principal and interest in the same foreign currency.

IV. The Borrower hereby irrevocably authorizes the Loaner to deduct directly from the Borrower’s account for collecting the principal and interest without going through any legal process in case any event as stipulated in Article X and Article XI happens.

Article VIII Guarantee

I. The following contracts are the guarantee contract hereof:

(I) “                    ” (title of contract) numbered              with Guarantor being                      and manner of guaranty being                     ;

(II) “                    ” (title of contract) numbered              with Guarantor being                      and manner of guaranty being                     ;

(III) “                    ” (title of contract) numbered              with Guarantor being                      and manner of guaranty being                     ;

Article IX Representations and Waranties

I. The Borrower hereby represents and warranties to the Loaner as follows:

(I) The Borrower is a duly registered enterprise as legal person and will validly exist during the term of the Loan and has the power to sign and perform this Contract.

(II) The Loan that the Borrower borrows hereunder has obtained the authorization of his board of directors or equivalent top leadership and is not in violation of ay laws, regulations, policies or articles of association pertaining to the Borrower.

(III) The Borrower has no mortgage, pledge, pawn or any other debt burdens on his assets or profit except for those indicated in the documents that he has submitted to the Loaner, and has no pending lawsuits, arbitration or bankruptcy proceedings.

(IV) The Borrower shall not conceal from the Loaner any of the following events that has happened or will happen which may lead to the Loaner’s objection to extending the Loan hereunder:

1. Gross violation against discipline or law involving the Borrower or any of his major leaders;

2. Pending lawsuit, arbitration events;

3. Any obligations that he has or has undertaken or any guarantee, pledge, mortgage that he has provided to a third party;

4. Events of breach by the Borrower under any contract with other creditors;

5. Any other situations that may influence Borrower’s financial status and solvency.

II. The Borrower hereby warrants to the Loaner as follows:

(I) to provide true documents, reports and statements and vouchers as required;

(II) to open an account for settlement at the Loaner and to settle accounts through that account;

(III) to use the Loan in accordance with the purpose stipulated herein without diverting its use to any other purpose including investment in equity capital; not to use the Loan in illegal speculative trading of securities, futures or in real estate; not to use the Loan in mutual loan between enterprises or other illegal activities forbidden by the Government; not to appropriate or divert the use of the Loan in any other manners.

(IV) to accept and assist the Loaner’s supervision and inspection from time to time on the Borrower’s use of the Loan and the Borrower’s production, operation, financial activities, inventory, assets and liabilities, bank deposits, cash on hand, etc.

(V) to provide full amount of valid guarantee recognized by the Loaner;

(VI) not to reduce his registered capital in any manner;

(VII) not to assign the whole or part of his liabilities hereunder to a third party without the Loaner’s written consent;

(VIII) In the event that Borrower intends to make any reduction to his registered capital or make major change in property right or make any adjustment in pattern of operation (including but not limited to such changes to the pattern of operation as entering into joint venture or cooperation with foreign business; schism, merger, annexation, being annexed; reorganization, organized or reorganized into a joint-stock company; lease, undertaking of works, pooling, trusteeship, etc.), he shall notify Lender in advance. Should the above actions expose adverse impact on Borrower’s solvency, Borrower shall obtain Lender’s consent before taking such actions.

Article X Premature Withdrawal of the Loan

The Loaner shall be entitled to withdraw the Loan prior to the expiration of its term in case any of the following occurs with the Borrower and to deduct directly from any account of the Borrower.

(I) Debit interest has occurred on the Loan;

(II) The Borrower has incurred loss in operation or abrupt fall in economic performance;

(III) The Borrower is or will be involved in any lawsuit, arbitration or any other legal disputes;

(IV) The Borrower has provided false reports and data;

(V) The Borrower has diverted the use of the Loan for any other purpose (that is, the Borrower is not using the Loan in the stipulated purpose.)

(VI) The Borrower refuses the Loaner to supervise and inspect his operation, financial status, etc. or refuses to provide relevant reports or data;

(VII) Major personnel change has taken place with the Borrower;

(VIII) Any other matters that may harm the security of the Loan.

Article XI Liabilities for Breach of the Contract

I. The Borrower shall constitute a breach if any of the following occurs:

(I) The Borrower fails to pay the principal and interest as scheduled herein;

(II) The Borrower has acted against his representations and warranties in Article IX hereof;

(III) The Borrower has acted against any other provisions hereof.

II. Upon Borrower’s breach, the Loaner shall have the right to take one or more of the following actions:

(I) To require the Borrower to correct the breach in a defined time;

(II) To stop the Borrower’s draw down;

(III) To terminate this Contract and to require the Borrower to pay up mature or premature principal and the interest;

(IV) To require the Borrow to pay the overdue penalty interest if the Loan has exceeded its term;

(V) To require the Borrower to pay penalty interest for diversion of use of the Loan if the Borrower has so acted;

(VI) To require the Borrower to pay the compound interest for overdue interest;

(VII) To deduct and collect the amount of the due principal and interest from any of the Borrower’s accounts. Where the currency on the Borrower’s account is different from that of the Loan, the Loaner shall have the right to liquidate the Loan by converting it into the currency of the Loan at the exchange rate publicized on the date of the liquidation.

(VIII) To recourse the principal and interest of the Loan by legal means, with all expenses arising from the legal action to be on the Borrower’s account.

III. The Loaner shall pay for any loss caused on the Borrower by the Loaner’s failure to provide the Loan in accordance with the dates and amounts stipulated herein.

IV. In case any of the following occurs to the Guarantor (or Warantor, Pledgor or Pawner) hereunder, the Loaner shall have the right to take actions in accordance with the foregoing provisions herein:

(I) The Guarantor is in breach of the provisions of the Maximum Line Guarantee Contract, or his credit status is deteriorated or any other event that may weaken the capacity of guarantee happens;

(II) The Mortgagor is in breach of the provisions of the Maximum Line Guarantee Contract, or intentionally causes damage or destroys the object of mortgage or the value of the object of mortgage may be remarkably reduced or any other situation that may affect the mortgage rights of the Accreditor occurs;

(III) The Pledgor is in breach of the provisions of the Maximum Line Guarantee Contract, or the value of the object of pledge may be remarkably reduced or the pledge right must be discounted ahead in advance or any other situation that may affect the mortgage rights of the Accreditor occurs.

Article XII Jurisdiction

The execution, validity, interpretation and performance of this Contract shall be governed by the laws of the People’s Republic of China. Any and all disputes arising from the performance of or in connection with this Contract shall be settled through friendly negotiations between the two Parties or submitted to the local people’s court at the Loaner’s location.

Article XIII Term of Effectiveness

This Contract shall come into effect when the following conditions are met:

(I) Both Parties hereto have signed hereon;

(II) Where this Contract is guaranteed, the guarantee or mortgage or pledge contract has come into effect;

(III) Where the Loaner requests notarization on this Contract, the procedures of such notarization has been completed.

This Contract shall automatically become invalid upon clearance of the principal and interest of the Loan and all other liabilities hereunder.

Article XIV Copies

This Contract is executed in three original copies of which the Parties hereto and the notarization organization shall respectively hold one. The duplicate copies may be amended according to situation.

Article XV Supplementary Article

The Borrower and the Loaner have agreed through consultation that the account that the Borrower shall open at the Loaner after the Loaner has extended the loan to the Borrower shall carry a deposit not less than the interest of the Loan for the current period for the payment of the interest.

The Loaner (Official Seal): Tianjin Branch, Industrial Bank Co., Ltd.

Legal representative of proxy (signature):

The Borrower (Official Seal): Pemstar (Tianjin) Enterprise Co., Ltd.

Legal representative of proxy (signature):

EX-10.50

EXHIBIT 10.50

NO.A101A06001

LOAN CONTRACT

Bank of Communications

No.:

Loan Contract

Important Hint

The Borrower is requested to read the whole text of this Contract carefully, especially articles marked with . In case of any doubt, ask the Loaner for explanation.

Borrower: Pemstar (TianJin) Enterprise Co, Ltd.

Legal Representative (Pricipal):                             

Registered Address:                                                                          

Correspondence Address:                                                                  

Loaner: TianJin Branch (Subbranch), Bank of Communications

Legal Representative (Pricipal):                                         

Registered Address:                                                                          

Correspondence Address:                                                                  

Whereas Borrower has applied for a loan from Loaner, the two parties hereby enter this Contract through consultation in order to clarify respective rights and obligations.

Article I. The Loan

1.1 Currency: RMB.

1.2 Amount (in words): Forty million.

1.3 The Loan under this Contract shall only be used for purchasing raw materials..

1.4 Term: From Jan-04-2006 to Jul-03-2006 .

Article II. Interest Rate and Calculation and Payment of Interest

2.1 Interest rate: 4.698% (• year ¨ month). Daily interest rate = monthly interest rate/30, monthly interest rate = annual interest rate/12.

2.2 Calculation of Interest

2.2.1 Normal interest = interest rate stipulated herein × amount of loan × number of days of holding. The number of days of holding is calculated from the day when the Loan is made to the day of expiration of the Loan.

2.2.2 The penalty interest on any part of the Loan overdue or loan diverted to any use other than that specified herein shall be calculation on the basis of actual number of days and amount overdue or diverted. Where the loan is in RMB, the penalty interest rate on overdue loan shall be 50% in excess of the interest rate stipulated herein and the penalty interest rate on any part of the Loan diverted to other use shall be 100% in excess of the interest rate stipulated herein.

2.3 The interest of the Loan hereunder shall be settled in manner (1) of the following. The interest shall be paid together with the principal upon expiration of the term of the Loan. The interest payment day shall be the interest settlement day:

(1) The 20^th day of the last month of each quarter;

(2) The 20^th day of each month.

Article III. Extending and Repayment of the Loan

3.1 The Borrower shall handle related procedures at least 3 days in advance of the day when he intends to draw loan and in accordance with the following loan schedule:

Loan Date	Amount of Loan
________________	___________________________________(in words)
________________	___________________________________(in words)
________________	___________________________________(in words)
________________	___________________________________(in words)

3.2 The Loaner shall have the right to refuse to extend loan before all the following conditions are satisfied:

(1) The Borrower has obtained all statutory procedures including governmental permits, approvals, registrations, etc. and all other procedures as the Loaner requires and the said permits, approvals, registrations, etc. are continuously valid;

(2) The Guarantee Contract hereunder (if any) has come into effect and is continuously valid;

(3) No material adverse changes have taken place in the operational and financial status of the Borrower;

(4) The Borrower has not committed any breach to this Contract.

3.3 The actual dates of loan and amounts of loan shall be as is recorded on the Loan Note.

3.4 The Borrower shall repay the Loan in accordance with the maturity date stipulated in Article 1.4 and the following schedule; where the maturity date recorded on the Loan Note is not the same as is stipulated herein, the former shall prevail.

Maturity Date	Amount of Repayment
________________	___________________________________(in words)
________________	___________________________________(in words)
________________	___________________________________(in words)
________________	___________________________________(in words)

3.5 The Borrower shall not repay any part of the Loan ahead of schedule without the Loaner’s written consent.

Article IV. The Borrower’s Representations and Warranties

4.1 The Borrower is an independent civil subject duly established and legally existing, having all necessary rights and capacities to perform his obligations hereunder and undertake civil liabilities in his own name.

4.2 The signing and performance hereof are the true indication of the Borrower’s intention and have obtained all necessary consents, approvals and authorizations, having no legal defects.

4.3 All the documents, statements, reports, data and information submitted to the Loaner by the Borrower in the course of the signing and performance hereof are true, accurate, complete and valid without concealing from the Loaner any information that may affect the financial status and the ability to repay of the Borrower.

Article V The Loaner’s Rights and Obligations

5.1 The Loaner shall have the right to recover the principal and interest of the Loan (including compound interest, overdue and diversion penalty interest, if any) and collect charges receivable in accordance with the provisions hereof and exercise other rights provided by law or stipulated herein.

5.2 The Loaner shall keep secret of the financial and operational data and other confidential information provided by the Borrower except otherwise provided by law or stipulated herein.

Article VI. The Borrower’s Obligations

6.1 The Borrower shall pay the interest on the Loan hereunder in accordance with the time, amount and kind of currency stipulated herein.

6.2 The Borrower shall not divert any amount of the Loan hereunder to any other use.

6.3 The Borrower shall bear the expenditure and costs hereunder including without limitation the notarization fee, verification fee, evaluation fee and registration fee.

The Borrower shall observe operational rules and usual practices of the Loaner related to the Loan business, including without limitation the requirement to coordinate with the Loaner in the supervision and inspection on the use of the Loan and the operational situations of the Borrower, to timely provide all financial statements and other data and information requested by the Loaner and to guarantee that all such documents, data and information are true, complete and accurate.

6.5 In case any of the following events shall happen to the Borrower, he shall give at least 30 days’ prior notice to the Loaner and shall not take any action before clearing up the Loan and interest hereunder or providing a repayment plan agreed by the Loaner:

(1) Sell, donate, lease, lend, transfer, mortgage, pledge of otherwise dispose of his important assets, the whole or major part of his assets;

(2) Any major changes has happened or may happen in the operational system or property right organizational form, including without limitation undertaking a contract, lease, pooling, transformation of corporate system, transformation of cooperative shares system, sales, merger (annexation), joint venture (cooperation), schism, affiliation, transfer of property right and decrease of capital, etc.

6.6 The Borrower shall notify the Loaner in writing within 7 days in case any of the following events has happened or may happen:

(1) Amendment to the Articles of Association, change of industrial and commercial registration items including enterprise name, legal representative (Principal), residence, correspondence address or business scope, etc. and making decisions having substantial influence the financial and personnel affairs.

(2) The Borrower or the Guarantor has applied for bankruptcy or may be applied for bankruptcy by creditor;

(3) Involved in major lawsuit or arbitration or any mandatory measure such as attachment is taken on important assets or the guaranty hereunder;

(4) Providing of guarantee to a third party and hence producing major adverse influence on the Borrower’s financial status or ability to perform his obligations hereunder;

(5) Signing of any contract that have material influence on his operational and financial status;

(6) The Borrower or the Guarantor has stopped operation, withdrawn from business, dissolved, stopped operation for rectification or is cancelled or his business license is revoked;

(7) The Borrower, his legal representative (principal) or major managerial personnel is involved in unlawful activities;

(8) Serious difficulties arise in the operation, the financial status is deteriorated or any other event that have adverse influence on the financial status or solvency of the Borrower has happened.

6.7 In case any change adverse to the creditor’s right of the Loaner has taken place with the Guaranty hereunder, the Borrower shall timely provide other guaranty approved by the Loaner in accordance with the Loaner’s requirement.

For the purpose of this article, “change” shall include without limitation the Guarantor has stopped operation, withdrawn from business, dissolved, stopped operation for rectification or is cancelled or his business license is revoked or has applied or is applied for bankruptcy; any material change has taken place in the operational or financial status of the Guarantor; the Guarantor is involved in major lawsuit or arbitration; the decrease or possible decrease in the value of the Guaranty or any mandatory measure such as attachment has been taken on the Guaranty; the Guarantor has committed any breach under the Guarantee Contract; any dispute has arisen between the Guarantor and the Borrower; the Guarantor has demanded to cancel the Guarantee Contract; the Guarantee Contract fails to come into effect or has been revoked; the Guaranty is false or invalid; or any other event that may influence the safety of the creditor’s right.

Article VII. Other Matters Agreed upon between the Parties

_______________________________________________

_______________________________________________

_______________________________________________

Article VIII. Premature Expiration of the Term of Loan

The Loaner shall be entitled to stop to extend the part of the Loan not yet used by the Borrower, to unilaterally declare the premature expiration of the term of the principal part of or the entire Loan that has been extended hereunder and to require the Borrower to immediately repay all mature principals of the Loan and clear the interest thereon:

(1) Any part of the representations and warranties under Article IV is false;

(2) The Borrower has breached any stipulations herein;

(3) Any of the events listed in Article 6.6 has actually happened which according to the Loaner’s judgment will damage the safety of his creditor’s rights;

(4) The Borrower has committed any breach in performing any other contracts between him and the Loaner such delay of the performance of contract and has failed to correct such breaches after the Loaner’s press for correction.

Article IX. Breach

9.1 In case the Borrower fails to repay principal or pay the interest in full according to schedule, or fails to use the Loan in accordance with the purpose stipulated herein, the Loaner shall have the right to calculate and collect the interest at the penalty interest rate on overdue loan or on diverted loan and collect compound interest on overdue interest.

9.2 In case the Borrower fails to repay principal or pay the interest in full according to schedule, he shall bear the cost arising from the activities for the realization of creditor’s right including without limitation the cost for press for payment, legal cost (or arbitration cost), cost of preservation, announcement fee, enforcement fee, lawyer’s fee and travel cost.

9.3 In case of the Borrower’s evasion from the Loaner’s supervision, arrears in the payment of the principal and interest of the Loan, evasion of debts and similar, the Loaner shall have the right to inform related parties and announce such conducts on news media.

Article X Stipulations on Payment by Deduction

10.1 In case the Borrower has matured principal, interest, penalty interest, compound interest or any other payables, it shall authorize the Loaner to deduct such amount from any of the Borrower’s account in the Bank of Communications for payment.

10.2 After payment by deduction, the Loaner shall notify the Borrower of the number of the account, number of the loan contract, number of the Loan Note, the deducted amount and amount of the balance of debt.

10.3 In case the amount from the deduction does not cover all the debts of the Borrower, such amount shall be first used to pay the matured unpaid costs, the balance remained thereafter shall be first used to pay the matured unpaid interest or penalty interest and compound interest before paying for the matured unpaid principal where the principal and interest are less than 90 days past due but shall be first used to pay the matured unpaid principal before paying matured unpaid interest or penalty interest and compound interest where the principal or interest is more than 90 days past due.

10.4 Where the amount from the payment by deduction is not in the same currency as the debt to be paid, conversion shall be made at the exchange rate published by the Bank of Communications on the date of the payment by deduction.

Article XI. Settlement of Disputes

All disputes arising hereunder shall be settlement in manner (1) of the following. During the term of a dispute, the parties hereto shall continue to perform articles not involved in the dispute.

(1) All disputes arising hereunder shall be submitted to the court having jurisdiction over the place where the Loaner is located.

(2) All disputes shall be submitted to the              Arbitration Committee for arbitration in accordance with the rules of arbitration current at the time of the application for arbitration. The arbitration award shall be final and binding on all parties hereto.

Article XII. Other Clauses

12.1 The Loan Note hereunder and related documents and materials confirmed by both parties shall be indivisible integral part hereof.

12.2 This Contract shall come into effect immediately it is signed (or affixed personal seals) by the legal representatives (Pricipals) or authorized proxies of both parties and affixed official seals.

12.3 This Contract shall is executed in triplicate of which the two parties hereto and the Warrantor shall respectively hold one. (No text hereafter)

The Borrower hereby acknowledges that he has read all the above articles, that the Loaner has given corresponding explanations at Borrower’s request and that the Borrower has no objection to all the content hereof.

The Borrower (official seal)	The Loaner (official seal)
Legal Representative (Pricipal) or authorized proxy	Legal Representative (Pricipal) or authorized proxy
(signature or seal)	(signature or seal)
Date:	Date:

EX-10.51

EXHIBIT 10.51

NO.A101A06007

LOAN CONTRACT

Bank of Communications

No.:                                                             

Loan Contract

Important Hint

The Borrower is requested to read the whole text of this Contract carefully, especially articles marked with . In case of any doubt, ask the Loaner for explanation.

Borrower: Pemstar (TianJin) Enterprise Co,Ltd.

Legal Representative (Pricipal):                                              

Registered Address:                                                                              

Correspondence Address:                                                                      

Loaner: TianJin Branch (Subbranch), Bank of Communications

Legal Representative (Pricipal):                                              

Registered Address:                                                                              

Correspondence Address:                                                                      

Whereas Borrower has applied for a loan from Loaner, the two parties hereby enter this Contract through consultation in order to clarify respective rights and obligations.

Article I. The Loan

1.1 Currency: RMB.

1.2 Amount (in words): twenty million.

1.3 The Loan under this Contract shall only be used for purchasing raw materials..

1.4 Term: From Jan-13-2006 to Jul-13-2006.

Article II. Interest Rate and Calculation and Payment of Interest

2.1 Interest rate: 4.698% (• year  ¨ month). Daily interest rate = monthly interest rate/30, monthly interest rate = annual interest rate/12.

2.2 Calculation of Interest

2.2.1 Normal interest = interest rate stipulated herein × amount of loan × number of days of holding. The number of days of holding is calculated from the day when the Loan is made to the day of expiration of the Loan.

2.2.2 The penalty interest on any part of the Loan overdue or loan diverted to any use other than that specified herein shall be calculation on the basis of actual number of days and amount overdue or diverted. Where the loan is in RMB, the penalty interest rate on overdue loan shall be 50% in excess of the interest rate stipulated herein and the penalty interest rate on any part of the Loan diverted to other use shall be 100% in excess of the interest rate stipulated herein.

2.3 The interest of the Loan hereunder shall be settled in manner (1) of the following. The interest shall be paid together with the principal upon expiration of the term of the Loan. The interest payment day shall be the interest settlement day:

(1) The 20^th day of the last month of each quarter;

(2) The 20^th day of each month.

Article III. Extending and Repayment of the Loan

3.1 The Borrower shall handle related procedures at least 3 days in advance of the day when he intends to draw loan and in accordance with the following loan schedule:

Loan Date	Amount of Loan
________________	___________________________________(in words)
________________	___________________________________(in words)
________________	___________________________________(in words)
________________	___________________________________(in words)

3.2 The Loaner shall have the right to refuse to extend loan before all the following conditions are satisfied:

(1) The Borrower has obtained all statutory procedures including governmental permits, approvals, registrations, etc. and all other procedures as the Loaner requires and the said permits, approvals, registrations, etc. are continuously valid;

(2) The Guarantee Contract hereunder (if any) has come into effect and is continuously valid;

(3) No material adverse changes have taken place in the operational and financial status of the Borrower;

(4) The Borrower has not committed any breach to this Contract.

3.3 The actual dates of loan and amounts of loan shall be as is recorded on the Loan Note.

3.4 The Borrower shall repay the Loan in accordance with the maturity date stipulated in Article 1.4 and the following schedule; where the maturity date recorded on the Loan Note is not the same as is stipulated herein, the former shall prevail.

Maturity Date	Amount of Repayment
________________	___________________________________(in words)
________________	___________________________________(in words)
________________	___________________________________(in words)
________________	___________________________________(in words)

3.5 The Borrower shall not repay any part of the Loan ahead of schedule without the Loaner’s written consent.

Article IV. The Borrower’s Representations and Warranties

4.1 The Borrower is an independent civil subject duly established and legally existing, having all necessary rights and capacities to perform his obligations hereunder and undertake civil liabilities in his own name.

4.2 The signing and performance hereof are the true indication of the Borrower’s intention and have obtained all necessary consents, approvals and authorizations, having no legal defects.

4.3 All the documents, statements, reports, data and information submitted to the Loaner by the Borrower in the course of the signing and performance hereof are true, accurate, complete and valid without concealing from the Loaner any information that may affect the financial status and the ability to repay of the Borrower.

Article V The Loaner’s Rights and Obligations

5.1 The Loaner shall have the right to recover the principal and interest of the Loan (including compound interest, overdue and diversion penalty interest, if any) and collect charges receivable in accordance with the provisions hereof and exercise other rights provided by law or stipulated herein.

5.2 The Loaner shall keep secret of the financial and operational data and other confidential information provided by the Borrower except otherwise provided by law or stipulated herein.

Article VI. The Borrower’s Obligations

6.1 The Borrower shall pay the interest on the Loan hereunder in accordance with the time, amount and kind of currency stipulated herein.

6.2 The Borrower shall not divert any amount of the Loan hereunder to any other use.

6.3 The Borrower shall bear the expenditure and costs hereunder including without limitation the notarization fee, verification fee, evaluation fee and registration fee.

The Borrower shall observe operational rules and usual practices of the Loaner related to the Loan business, including without limitation the requirement to coordinate with the Loaner in the supervision and inspection on the use of the Loan and the operational situations of the Borrower, to timely provide all financial statements and other data and information requested by the Loaner and to guarantee that all such documents, data and information are true, complete and accurate.

6.5 In case any of the following events shall happen to the Borrower, he shall give at least 30 days’ prior notice to the Loaner and shall not take any action before clearing up the Loan and interest hereunder or providing a repayment plan agreed by the Loaner:

(1) Sell, donate, lease, lend, transfer, mortgage, pledge of otherwise dispose of his important assets, the whole or major part of his assets;

(2) Any major changes has happened or may happen in the operational system or property right organizational form, including without limitation undertaking a contract, lease, pooling, transformation of corporate system, transformation of cooperative shares system, sales, merger (annexation), joint venture (cooperation), schism, affiliation, transfer of property right and decrease of capital, etc.

6.6 The Borrower shall notify the Loaner in writing within 7 days in case any of the following events has happened or may happen:

(1) Amendment to the Articles of Association, change of industrial and commercial registration items including enterprise name, legal representative (Principal), residence, correspondence address or business scope, etc. and making decisions having substantial influence the financial and personnel affairs.

(2) The Borrower or the Guarantor has applied for bankruptcy or may be applied for bankruptcy by creditor;

(3) Involved in major lawsuit or arbitration or any mandatory measure such as attachment is taken on important assets or the guaranty hereunder;

(4) Providing of guarantee to a third party and hence producing major adverse influence on the Borrower’s financial status or ability to perform his obligations hereunder;

(5) Signing of any contract that have material influence on his operational and financial status;

(6) The Borrower or the Guarantor has stopped operation, withdrawn from business, dissolved, stopped operation for rectification or is cancelled or his business license is revoked;

(7) The Borrower, his legal representative (principal) or major managerial personnel is involved in unlawful activities;

(8) Serious difficulties arise in the operation, the financial status is deteriorated or any other event that have adverse influence on the financial status or solvency of the Borrower has happened.

6.7 In case any change adverse to the creditor’s right of the Loaner has taken place with the Guaranty hereunder, the Borrower shall timely provide other guaranty approved by the Loaner in accordance with the Loaner’s requirement.

For the purpose of this article, “change” shall include without limitation the Guarantor has stopped operation, withdrawn from business, dissolved, stopped operation for rectification or is cancelled or his business license is revoked or has applied or is applied for bankruptcy; any material change has taken place in the operational or financial status of the Guarantor; the Guarantor is involved in major lawsuit or arbitration; the decrease or possible decrease in the value of the Guaranty or any mandatory measure such as attachment has been taken on the Guaranty; the Guarantor has committed any breach under the Guarantee Contract; any dispute has arisen between the Guarantor and the Borrower; the Guarantor has demanded to cancel the Guarantee Contract; the Guarantee Contract fails to come into effect or has been revoked; the Guaranty is false or invalid; or any other event that may influence the safety of the creditor’s right.

Article VII. Other Matters Agreed upon between the Parties

Article VIII. Premature Expiration of the Term of Loan

The Loaner shall be entitled to stop to extend the part of the Loan not yet used by the Borrower, to unilaterally declare the premature expiration of the term of the principal part of or the entire Loan that has been extended hereunder and to require the Borrower to immediately repay all mature principals of the Loan and clear the interest thereon:

(1) Any part of the representations and warranties under Article IV is false;

(2) The Borrower has breached any stipulations herein;

(3) Any of the events listed in Article 6.6 has actually happened which according to the Loaner’s judgment will damage the safety of his creditor’s rights;

(4) The Borrower has committed any breach in performing any other contracts between him and the Loaner such delay of the performance of contract and has failed to correct such breaches after the Loaner’s press for correction.

Article IX. Breach

9.1 In case the Borrower fails to repay principal or pay the interest in full according to schedule, or fails to use the Loan in accordance with the purpose stipulated herein, the Loaner shall have the right to calculate and collect the interest at the penalty interest rate on overdue loan or on diverted loan and collect compound interest on overdue interest.

9.2 In case the Borrower fails to repay principal or pay the interest in full according to schedule, he shall bear the cost arising from the activities for the realization of creditor’s right including without limitation the cost for press for payment, legal cost (or arbitration cost), cost of preservation, announcement fee, enforcement fee, lawyer’s fee and travel cost.

9.3 In case of the Borrower’s evasion from the Loaner’s supervision, arrears in the payment of the principal and interest of the Loan, evasion of debts and similar, the Loaner shall have the right to inform related parties and announce such conducts on news media.

Article X Stipulations on Payment by Deduction

10.1 In case the Borrower has matured principal, interest, penalty interest, compound interest or any other payables, it shall authorize the Loaner to deduct such amount from any of the Borrower’s account in the Bank of Communications for payment.

10.2 After payment by deduction, the Loaner shall notify the Borrower of the number of the account, number of the loan contract, number of the Loan Note, the deducted amount and amount of the balance of debt.

10.3 In case the amount from the deduction does not cover all the debts of the Borrower, such amount shall be first used to pay the matured unpaid costs, the balance remained thereafter shall be first used to pay the matured unpaid interest or penalty interest and compound interest before paying for the matured unpaid principal where the principal and interest are less than 90 days past due but shall be first used to pay the matured unpaid principal before paying matured unpaid interest or penalty interest and compound interest where the principal or interest is more than 90 days past due.

10.4 Where the amount from the payment by deduction is not in the same currency as the debt to be paid, conversion shall be made at the exchange rate published by the Bank of Communications on the date of the payment by deduction.

Article XI. Settlement of Disputes

All disputes arising hereunder shall be settlement in manner (1) of the following. During the term of a dispute, the parties hereto shall continue to perform articles not involved in the dispute.

(1) All disputes arising hereunder shall be submitted to the court having jurisdiction over the place where the Loaner is located.

(2) All disputes shall be submitted to the              Arbitration Committee for arbitration in accordance with the rules of arbitration current at the time of the application for arbitration. The arbitration award shall be final and binding on all parties hereto.

Article XII. Other Clauses

12.1 The Loan Note hereunder and related documents and materials confirmed by both parties shall be indivisible integral part hereof.

12.2 This Contract shall come into effect immediately it is signed (or affixed personal seals) by the legal representatives (Principals) or authorized proxies of both parties and affixed official seals.

12.3 This Contract shall is executed in triplicate of which the two parties hereto and the Warrantor shall respectively hold one. (No text hereafter)

The Borrower hereby acknowledges that he has read all the above articles, that the Loaner has given corresponding explanations at Borrower’s request and that the Borrower has no objection to all the content hereof.

The Borrower (official seal)	The Loaner (official seal)
Legal Representative (Pricipal) or authorized proxy (signature or seal)	Legal Representative (Pricipal) or authorized proxy (signature or seal)
Date:	Date:

EX-10.52

EXHIBIT 10.52

NO.A103A06013

LOAN CONTRACT

Bank of Communications

Agreement on Transfer of Receivables

Jiao Yin YYYY Zi No.                    

Party A:Pemstar (TianJin) Enterprise Co,Ltd.

Address:

Legal Representative:

Party B: TianJin Branch, Bank of Communications

Address:

Legal Representative:

Whereas Party intends to transfer the receivables of RMB              under the Sales Contract for              that Party A executed with                      Company (hereinafter called “the Third Party”) to Party B in order to timely take back receivables to improve the utilization efficiency of funds, Party A and Party B have hereby entered into this Agreement through consultation.

Article I

The subject matter of this Agreement is the receivables that the Third Party shall pay to Party A as stipulated in the Sales Contract executed between Party A and the Third Party. All other rights that Party A enjoys and obligations that Party A bears shall remain with Party A, being irrelevant to Party B. However, the guaranty placed for guaranteeing the realization of the creditor’s right on Party A’s receivables under the Sales Contract shall be transferred to Party B together with the creditor’s right on the receivables.

Article II

The details of the receivables under the Sales Contract that Party A transfers to Party B are listed in the table below:

Invoice #	Invoice Value	Transfer Price of Receivables	Discount for Transfer	Payment Maturity Date Set in the Sales Contract	Period of Grace	Dater of Buy-back	Name of Commodity
Total	64928375.48	55494337.95	291345.27		0	Apr-9-2006

Article III

The Transfer Price accepted by both parties for the receivables is RMB55,494,337.95yuan with transfer discount being RMB291,345.27yuan. The Transfer Price shall be paid by Party B to Party B’s settlement account at Party B within three (3) banking days after this Agreement has been signed by both parties and Party A has performed the obligations set in Article IV and Article VI hereof. The Transfer Discount shall be deducted from Party A’s settlement account by Party B while paying the Transfer Price.

Article IV

Party A shall submit all the Sales Contract, invoices, delivery receipts and all other commercial vouchers and documents necessary for the verification of Party A’s legitimate creditor’s right to Party B within three (3) days of the signing hereof. The submission of the abovementioned vouchers and documents shall be a precondition for Party B’s performance of the obligation to pay the Transfer Price.

Article V

Party A shall notify the Third Party of the transfer of the receivables and the change to payment terms set in the Sales Contract in writing in the format of “Notice of Transfer of Receivables” attached hereto.

Article VI

To perform this Agreement, Party A shall open and maintain a Settlement Account numbered 120066021018010004657 . The receivables hereunder that Party A receive from the Third Party on behalf of Party B shall be deposited in the Settlement Account. The opening and maintenance of the Settlement Account shall be a precondition for Party B’s performance of the obligation to pay the Transfer Price. Party B shall be entitled to deduct the receivables directly from the Settlement Account after they have been paid to the Settlement Account

Article VII

After the transfer of the receivables, Party B shall entrust Party A to collect the receivables for the Third Party. Party A shall, in accordance with the requirement of the “Notice of Transfer of Receivables” attached hereto, notify and urge the Third Party to timely and fully pay the payment of the Sales Contract to the Settlement Account specified in Article VI hereof. In case the Third Party pays the receivables to any other account by mistake, Party A shall transfer the payment to the Settlement Account specified in Article VI the same day as such payment is received. For any delay of the transfer of the payment, Party B shall be entitled to receive a penalty from Party A at the rate of          ten thousandths per diem and Party A shall irrevocably authorize Party B to deduct such penalty and receivables directly from any of Party A’s account opened at the Bank of Communications.

Article VIII

Party A warrants that:

1. the Sales Contract corresponding to the receivables transferred by Party A to Party B according to this Agreement is legitimate and valid and Party A has performed the delivery and all other obligations of Party A under the Sales Contract;

2. no article forbidding Party A’s transfer of creditor’s right is contained in the Sales Contract corresponding to the receivables transferred by Party A to Party B in accordance herewith;

3. Party A and the Third Party shall not make any amendment to the Sales Contract after the transfer of the receivables;

4. Party A shall strictly perform the Sales Contract to prevent any adverse influence on his right to receive the payment due to improper performance;

5. no dispute that may lead to the Third Party’s refusal to pay such receivables exists with the creditor’s right that Party A shall transfer, including without limitation any lien, mortgage and repeated transfer and no does any claim or performance of right of setoff of the Third Party exist.

6. should any situation whereby the Third Party claims for turn of payment, price deduction, payment of penalty or compensation occur due to dispute arising out of the Sales Contract after the Third Party has effected the payment, the payment for such claims shall be born by Party A and Party B shall not intervene into any dispute between Party A and Party B out of the Sales Contract nor shall Party B bear any responsibility of Party A under the Sales Contract.

Article IX Buyback

1. In case the Third Party fails to pay the receivables in full to the Settlement Account specified in Article VI hereof by the Date of Buyback stipulated herein or advanced Date of Buyback proclaimed by Party B, Party A shall perform his liability to buyback to Party B for the receivables.

2. In case the situation stated in the previous paragraph happens, Party B shall immediately notify Party A in writing to require Party A to pay the receivables in full to the Settlement Account within stipulated time limit.

3. After receiving payment made by Party A, Party B shall retransfer the original title to the receivables transferred to him by Party A to Party A and notify the Third Party in writing.

Article X

Should the Third Party indicate that he will not pay the whole of part of the contractual payment expressly in writing or act due to dispute arising out of the Sales Contract, Party B shall have the right to proclaim advancement of the Date of Buyback and require Party A to bear the liability of buyback. Party A shall pay the amount of buyback to the Settlement Account specified in Article VI hereof. After buyback, Party B shall retransfer the original title to the receivables transferred to him by Party A to Party A and notify the Third Party in writing. No adjustment shall be made on the Transfer Discount irrespective for what reason the transferor is required to buyback in advance.

Article XI

Where the receivables corresponding to more than one invoice under a same sales contract is transfer together and of which the receivables corresponding to one or more of such invoices are in arrears, Party B shall have the right to proclaim the advancement of the Date of Buyback of other undue receivables and Party A’s obligation to buyback shall be automatically generated. Party A shall pay the amount of buyback to the Settlement Account specified in Article VI hereof on the day next to the Date of Buyback proclaimed by Party B. After Party A has paid the amount of buyback in full, the receivables corresponding to the amount of buyback shall be retransferred to Party A and Party B shall notify the Third Party.

Article XII

Within three (3) banking days after Party B has received all the receivables or after Party A has paid up all the amount of buyback, Party B shall notify Party A to withdraw the originals of all the vouchers and documents described in Article IV hereof.

Article XIII Liability for Breach

1. In case Party A fails to perform his obligations under Article V hereof, that is, Party A fails to notify the Third Party of the transfer of the receivables or the Third Party fails to receive such notice, the transfer of the receivables shall not take effect. In such cases, Party A shall repay the Transfer Price he has received under Article III hereof to Party B and shall pay Party B a penalty at the rate of          ten thousandths per diem calculated from the day next to the Date of Buyback or the advanced Date of Buyback proclaimed by Party B to the date on which Party A has actually repaid the Transfer Price. Party B shall not return the Transfer Discount received from Party A under Article III hereof.

2. In case Party A fails to perform his obligations for guaranty under 1, 2 of Article VIII hereof causing this Agreement to be invalid, Party A shall repay the Transfer Price to Party B in accordance with Article III hereof and shall pay a penalty to Party B as compensation for damage at the rate of              then thousandths per diem calculated from from the day next to the Date of Buyback or the advanced Date of Buyback proclaimed by Party B to the date on which Party A has actually repaid the Transfer Price. Party B shall not return the Transfer Discount received from Party A under Article III hereof.

3. In case Party A fails to perform his obligations for guaranty under 3, 4 of Article VIII hereof and amends the Sales Contract with the Third Party or Party A fails to perform his

obligations under the Sales Contract causing the Third Party’s failure to perform, or refusal to perform or incomplete performance of his obligations to pay the receivables to Party A, Party A shall bear the liability to buy back the part in connection with the Third Party failure to perform, or refusal to perform or incomplete performance of his obligations and shall pay Party B the amount of buyback in full on the day next to the Date of Buyback or the advanced Date of Buyback proclaimed by Party B. For any delay of the payment, Party B shall be entitled to receive a penalty from Party A at the rate of          ten thousandths per diem until Party A has actually bought back.

4. In case Party A fails to perform his obligations for guaranty under 5 of Article VIII hereof causing Party A unable to receive the payment in full on the Date of Buyback, Party A shall bear the liability to buyback the part on which the Third Party fails to pay and shall pay Party B the amount of buyback in full on the day next to the Date of Buyback or the advanced Date of Buyback proclaimed by Party B. For any delay of the payment, Party B shall be entitled to receive a penalty from Party A at the rate of              ten thousandths per diem until Party A has actually bought back.

5. In case Party A fails to perform his obligations to buy back within the time limit specified in 2 of Article IX, Party A shall continue to bear his obligations to buy back and shall pay Party B a penalty calculated at              ten thousandths per diem from the day next to the date of expiration of performance time limit stipulated in 2 of Article IX until Party A has actually bought back.

6. Party A hereby irrevocably authorizes Party B to deduct the payment described in this paragraph and all foregoing paragraphs directly from any of Party A’s account opened at the Bank of Communications.

Article XIV Definitions

1. The “Date of Buyback” herein refers to the time limit for the Third Party to pay the receivables as stipulated in the Sales Contract corresponding to the receivables that Party A transfers to Party B plus          days.

(Refer to Article II for Date of Buyback).

2. The “Transfer Discount” herein refers to the benefit that Party B is to obtain from the acceptance of the transfer of the receivables calculated with the Transfer Price as base amount. Its formula of calculation is:

Transfer Discount = Transfer Price × Financing Period × Discount Rate.

Where Discount Rate =                             .

3. The Period of Financing herein shall be from the date of the signing hereof to the Date of Buyback.

4. The amount of buyback by Party A herein = Transfer Price – amount already recovered on the Date of Buyback or the advanced Date of Buyback proclaimed by Party B.

Article XV

This Agreement shall come into effect after it is signed (affixed seals) by the legal representatives or authorized proxies of both parties.

Article XVI

Any and all disputes arising from the performance hereof shall be settled through consultation between the parties; if no settlement can be reached through consultation, the disputes shall be submitted to the court having jurisdiction over the place where Party B is seated.

Article XVII

This Agreement is executed in              original copies of which each party hereto shall hold one and              duplicate copies for reference.

Party A:	Party B:
Legal Representative:	Legal Representative:
Date:	Date:

EX-10.53

EXHIBIT 10.53

Loan Contract

2006 Nian Min Jin Fen Jie Zi 009

CHINA MINSHENG BANKING CORP., LTD.

Loan Contract

Borrower: Pemstar (Tianjin) Enterprise Co., Ltd..(hereinafter called “Party A”)

Domicile: Yat-Sen Scientific & Industrial Park, Wuqing Development Area, Tianjin

Postcode: 301726

Legal Representative: Roy A. Bauer

Tel: 82172083

Fax: 82110486

Bank of Deposit: Tianjin Branch, China Minsheng Banking Corp., Ltd.

Account No.: 2101014180000479

Lender: Tianjin Branch, China Minsheng Banking Corp., Ltd.(hereinafter called “Party B”)

Domicile:

Postcode:

Legal Representative/Chief Officer:

Tel:

Fax:

This Contract is made by and between Party A and Party B through friendly negotiations in accordance with relevant current laws and regulations of the People’s Republic of China.

Chapter I Type of Loan

Article 1

Party B shall, in accordance with the provisions of this Contract, extend to Party A a     þ  Short term loan    ¨  Medium term loan    ¨  Long term loan.

Chapter II Purpose of Loan

Article 2

The Loan under this Contract shall be used as circulating fund. Party B shall not change the purpose of the loan specified in this Contract without Party A’s written consent.

Article 3

The amount of the Loan under this Contract shall be (in words): RMB Thirty million

Article 4

The term of loan hereunder shall be 6 months from Mar-02-2006 (stipulated date of issue) to Sep-02-2006 (stipulated date of maturity). In case the actual date of issue shall be different from the above stipulated date of issue, the latter shall prevail. The above stipulated term of loan shall remain unchanged and the date of maturity shall automatically change accordingly.

In case Party A shall require extension of the term of loan, he shall submit “Application for Extension of Term of Loan” to Party B 30 days before this Contract expires and the parties shall sign an “Agreement on Extension of Term of Loan” examined and approved by Party B; in case Party B shall not agree to the extension, the term of loan shall not be extended and Party A shall repay Party B the loan in full in accordance herewith.

Chapter IV Calculation of Interest

Article 5

5.1 The interest rate of the loan hereunder shall be 5.22 % (that is, floating     % [upward] [downward] from the loan interest rate for the same period published by the People’s Bank of China on the date of issue of the loan.); the date of issue of the loan refers to the date of issue of the loan stated in the receipt of loan or the date on which Party B issues the loan to Party A’s account or an account designated by Party A. In case the two aforesaid dates shall differ, the date on which Party B pays the loan shall prevail.)

5.2 The principal of the loan hereunder shall be deemed as taken out and used by Party A upon issuance and shall accrue interest from the date of issue of the loan. Party A shall, on each interest settlement date, pay Party B the interest accrued from the following day of the last interest settlement date (or date of issue of the loan) (inclusive) to the current interest settlement date (inclusive) and the principal mature on the current interest settlement date (if any). Irrespective of whether a date of interest settlement is a banking day Party A shall deposit an amount of money on his repayment account sufficient for covering the amount due before such date so that Party B can deduct the amount due on the interest settlement date; in case the amount deposited on the repayment account shall not be sufficient for deducting the amount due, Party B shall be construed as in arrears of repayment and shall pay Party B overdue interest and compound interest at overdue interest rate starting from the interest settlement date.

5.3 The interest on the loan hereunder shall be accrued and settled in manner (2) of the following:

(2) The interest shall be accrued and calculated on a monthly basis and settled on a quarterly basis on the 20^th day of the last month of the quarter with the last interest settlement date being the maturity date of the loan.

In case that the loan hereunder shall be misappropriated or overdued, the penalty interest, overdue interest and compound interest shall be accrued and calculated on a monthly basis.

5.4 In case Party A shall fail to pay any interest / principal of the loan as scheduled, Party B shall calculate and charge an overdue interest on the overdue interest / principal at the rate 30% up-floated above the Contractual loan interest rate (referred to as “overdue interest rate”) starting from the date on which such interest / principal shall become due. [Note: The proportion of interest rate up-floating in this paragraph is between 30%~50%]

5.5 In case Party A shall fail to use any part of the loan hereunder according to its stipulated purpose, Party B shall calculated and charge a penalty interest at the rate 50% up-floated above the Contractual loan interest

rate (referred to as “penalty interest rate”) starting from the date on which such part of the loan shall become overdue and may attach other responsibilities for breach of contract and shall have the right to declare the entire or part of the undue loan to be due immediately at any time. [Note: The proportion of interest rate up-floating in this paragraph is between 50%~100%]

5.6 In case the People’s Bank of China makes any adjustment to the abovementioned ruling rate of interest after the loan has been issued, the interest rate of the loan hereunder shall automatically float [upward][downward] by     % and shall be effective as of the day following the first interest settlement date for the month in which the adjustment is made (in case such adjustment shall happen on a interest settlement date, the automatically adjusted interest rate for the loan hereunder shall be effective as of the day following that interest settlement date). The interest shall be accrued and calculated starting from the same day when the adjust interest rate becomes effective.

When the interest rate for the loan hereunder shall be adjusted, the penalty interest rate and the overdue interest rate shall be automatically adjusted accordingly and shall be effective simultaneously with the interest rate for the loan hereunder.

The parties shall not require to sign any agreement on the interest rates adjusted under this paragraph and neither party shall be required to have the consent of or notify the other party, neither shall it be necessary to notify or have the consent of the guarantor.

Chapter V Drawing of the Loan

Article 6

Party A shall draw the loan hereunder  þ  in lump sum on Mar-02-2006 in several installments in accordance with the dates and amounts specified in Exhibit 1. In case of drawing the loan in installments, the date on which the first installment of loan is drawn shall be the initial date for the period of the loan under Article 4 hereof. The maturity date of each installment drawn shall not be later than the maturity date of loan under Article 4 hereof.

Chapter VI Repayment of the Loan

Article 7

7.1 Party A shall repay the principal of the loan  þ  in lump sum on the date of maturity. ¨ in several installments in accordance with the dates and amounts specified in the Exhibit 2.

7.2 Party B shall directly deduct and receive the principal of the loan repayable and the interest, overdue interest, compound interest, penalty and other expenses payable by Party A hereunder from the Party A’s account maintained with any operation establishments of China Minsheng Banking Corp. Limited.

7.3 If Party A intends to repay ahead of schedule, he shall do so only when there is not any matter of overdue payment and he has obtained Party B’s written consent. In such cases, he shall file an application with Party B for that purpose 10 banking days in advance. Where Party B approve Party A to repay ahead of schedule, the interest on the loan shall be calculated and charged on the basis of the actual days of usage of the loan and at the contractual loan interest rate provided herein.

Article 8

Party B shall have the right to declare that the loan be mature immediately any of the following events shall happen and recover the part of the loan already issued ahead of schedule, stop the issuing of the rest of the loan and take actions according to law:

8.1 where Party A shall fail to use the loan or pay the principal, interest and/or any other amounts payable in accordance with the provisions hereof;

8.2 where, during the validity of this Contract, any event that may endanger the security of loan shall happen due to bad operation and management, including losses or false profit or being involved in a dispute over obligation, or the dissolution, cancellation or withdrawal of business license or stop of operation shall happen to the Guarantor, or damage or loss of collaterals or any other event shall happen.

8.3 where Party A shall provide Party B with false balance sheet and profit and loss statement or those in which important facts are concealed, or refuse to receive Party B’s supervision on Party A’s usage of the loan and production, operation and financial activities.

8.4 where Party A shall expressly represent or indicate with his actions that he will not fulfill any of his obligations hereunder or the Guarantor shall fail to fulfill any of the obligations under the Guarantee Contract.

Chapter VII Security

Article 9

To ensure that the loan hereunder be paid off, Party A and Party B have agreed to adopt one or more of the following forms of security:

¨ Guaranty, refer to the “Guaranty Contract” numbered                     ;

¨ Hypothecation, refer to the “Hypothecation Contract” numbered                     ;

¨ Mortgage, refer to the “Mortgage Contract” numbered                     ;

If the parties have signed a “Contract on Comprehensive Line of Credit”, then they shall adopt one or more of the following forms of security:

¨ Guaranty, refer to the “Maximum Amount Guaranty Contract” numbered                     ;

¨ Hypothecation, refer to the “Maximum Amount Hypothecation Contract” numbered                     ;

¨ Mortgage, refer to the “Mortgage Contract” numbered                     ;

Chapter VIII Rights and Obligations of the Parties

Article 10

Party A’s Rights and Obligations:

10.1 Party A shall guarantee that the use of the loan hereunder shall be in compliance with relevant laws, regulations, administrative rules, rules of the sector and trade and Party A’s article of association or equivalent documents and all necessary licenses or authorizations have been obtained for such use.

10.2 Party A shall guarantee to provide true and valid information for and in the process of loan approval.

10.3 Party A shall accept Party B’s investigation, questioning and supervision on Party A’s use of the loan hereunder.

10.4 Party A shall actively cooperate with Party B in Party B’s investigation, questioning and supervision on Party A’s production, operation and financial situation and shall furnish Party A with copies of financial statements including balance sheets, profit and loss statement and cash flow statements on time.

10.5 Party A shall immediately notify Party B in writing in case any event that constitutes a danger to Party B’s normal operation or to Party B’s performance of his obligation to repay hereunder shall happen.

10.6 In case Party A shall take any action such as merge, scission, annexation, remolding with the stock system, contracting, lease, transfer of assets, pooling, making investment, application for suspension of operation for internal rectification, application for dissolution, application for bankruptcy or any other action that is sufficient to cause a change to the relationship between the creditor’s rights and debts or Party B’s rights and interests hereunder. Party A shall given Party B prior written notice of such matters and obtain Party B’s written consent; otherwise, Party A shall take any of abovementioned actions.

10.7 In case Party A shall change its domicile, name or legal representative, he shall give Party B 30 day’s notice about such change(s).

10.8 Party A shall not provide guarantee exceeding his net value of assets to a third party before he has paid off the loan and interest hereunder.

10.9 Party A shall obtain Party B’s written consent should he intend to transfer his liabilities hereunder to a third party.

Article 11

Party B’s Rights and Obligations:

11.1 Party B shall guarantee to issue the loan to Party A in accordance with relevant laws and regulations and that the signing of this Contract has been duly authorized.

11.2 Party B shall guarantee to issue the loan to Party A in full amount and as scheduled under the prerequisite that Party A has fully performed his obligations hereunder and satisfied the conditions for issuing the loan.

11.3 Party B shall keep Party A’s information confidential, including information about Party A’s liabilities, financial, production and operation data and information, except as otherwise provided for in law and regulations.

11.4 If Party A shall change his domicile during the term of this contract, he shall timely publicize an announcement for the change of address.

11.5 It shall not be necessary for Party B to obtain Party A’ consent if Party B intends to transfer his creditor’s right hereunder, but Party B shall notify Party B of such transfer after the contract for the transfer of creditor’s right is signed.

11.6 The money that Party A shall pay (including the money that Party B shall obtain hereunder) shall be used for clearing off the creditor’s right in the following sequence: (1) expenses for recovering creditor’s right and security interest; (2) compensation for damage; (3) penalty for breach; (4) compound interest; (5) overdue interest and penalty interest; (6) interest; (7) the principal. Party B shall have the right to change the sequence.

Chapter IX Liabilities for Breach of Contract

Article 12

12.1. Both parties shall perform their respective obligations hereunder; failure of a party to perform or to fully perform any his obligations hereunder shall constitute a breach to this Contract and the breaching party shall bear liabilities for such breach.

12.2. In case Party A shall fail to handle procedures for taking out the loan at Party B’s office as scheduled herein, Party B shall have the right to charge Party A an overdue interest as penalty calculated on the basis of the amount in breach and the number of days later than scheduled; if Party A shall fail to take the loan out for more than 30 days (including holidays and weekends), Party B shall be entitled to dissolve this Contract.

12.3. In case Part A shall fail to repay any sum due and payable as scheduled, Party B shall have the right to charge Party A the interest and compound interest as provided in this Contract.

12.4. In case Party B shall have to realize his creditor’s right through litigation due to Party A’s reasons, Party A shall bear the expenses of Party B

12.5. Where Party A has fully satisfied the provisions of this Contract but Party shall fail to provide Party A with the loan in accordance with the provisions hereof, Party A shall have the right to charge Party B a penalty on calculated at the overdue interest rate based on the amount in default and the number of days overdue.

Chapter X Effectiveness of This Contract

Article 13

This Contract shall come into effect immediately it is signed by the legal representatives / chief officer or their authorized proxies of both parties and affixed official seals of both parties; however, Party B shall not have the obligation to issue the loan before Party A and his Guarantor (if any) have signed the Guarantee Contract and gone through formalities stipulated therein.

Chapter XI Alteration and Termination of This Contract

Article 14

Neither party shall alter or terminate this Contract before it expires without the consent of the other party; any alteration to or early termination of this Contract shall be subject to written consent of both parties.

Chapter XII Settlement of Disputes

Article 15

Any and all disputes arising from or in connection with this Contract shall be first settled between the parties through friendly negotiations. If no settlement can be reached through negotiations, the disputes shall be settled through lawsuit at the court at Party B’s location.

Article 16

This is a contract for a specific transaction under Contract of Comprehensive Line of Credit numbered (2005) (Tianjin Branch)No. (038).

Article 17

All notices given hereunder shall be deemed given immediately if delivered by telegraph or facsimile or on the fourth day if delivered by mail.

Article 18

Other matters agreed between the parties:

_____________________________________________________

_____________________________________________________

Article 19

This Contract is executed in triplicate having equal legal effectiveness, of which Party A, Party B and      shall respectively hold one.

Article 20

At the time of signing hereof, Party B has made detailed clarification and explanation to Party A on all the terms and conditions hereof and both parties have no objection to any of the terms and conditions hereof and have correct and accurate understanding on

Article 21

This Contract is signed on Mar-02-2006 in TianJin

Party A:	Seal:
Legal Representative:	(Signature or Seal)
(or Authorized Proxy)
Party B:	Seal:
Legal Representative/Chief Officer: (or Authorized Proxy)	(Signature or Seal)

EX-12.1

EXHIBIT 12.1

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

PEMSTAR, Inc.

(In thousands)	Year ended March 31,
	2006			2005			2004			2003			2002
Earnings:
Loss from continuing operations before income taxes, net of cumulative effect of accounting change in 2003 (1)	$	(21,834	)	$	(25,862	)	$	(15,963	)	$	(33,649	)	$	(50,676	)
Add:
Rent expense representative of interest (2)		1,988			2,564			3,439			3,864			2,778
Interest expense net of capitalized interest		8,583			7,127			6,717			7,342			6,334
Amortization of debt discount and expense		1,005			1,035			1,225			1,528			915
Amortization of capitalized interest		36			36			14			17			11
Adjusted Earnings	$	(10,222	)	$	(15,100	)	$	(4,568	)	$	(20,898	)	$	(40,638	)
Fixed Charges:
Rent expense representative of interest (2)	$	1,988		$	2,564		$	3,439		$	3,864		$	2,778
Interest expense net of capitalized interest		8,583			7,127			6,717			7,342			6,334
Amortization of debt discount and expense		1,005			1,035			1,225			1,528			915
Capitalized interest		—			—			346			—			205
Fixed Charges	$	11,576		$	10,726		$	11,727		$	12,734		$	10,232
Ratio of earnings to fixed charges		(3	)		(3	)		(3	)		(3	)		(3	)

(1) Fiscal 2003 includes a goodwill write-down of $5,346 classified as a cumulative effect of accounting change.

(2) Calculated as one-third of rentals, which is considered representative of the interest factor.

(3) Adjusted earnings were not sufficient to cover fixed charges, falling short by $21,798, $25,826, $16,295, $33,632 and $50,870, for the years ended March 31, 2006, March 31, 2005, March 31, 2004, March 31, 2003, and March 31, 2002, respectively.

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF PEMSTAR, INC.

Subsidiary	Country of Incorporation
Pemstar Luxembourg S.a.r.l.	Luxembourg
Pemstar Singapore Pte Ltd.	Singapore
Pemstar Netherlands Holding B.V.	The Netherlands
Pemstar B.V.	The Netherlands
Pemstar Romania Holding B.V.	The Netherlands
Pemstar Thailand Ltd.	Thailand
Pemstar (Tianjin) Enterprise Company Ltd.	Republic of China
Pemstar (Beihai) Enterprises Co. Ltd.	Republic of China
Pemstar Technology (Shenzhen) Co., Ltd.*	Republic of China
Pemstar de Mexico, S. de R.L. de C.V.	Mexico
Pemstar Ireland Ltd.	Ireland
Pemstar Romania Srl	Romania
Pemstar Brasil Ltda.	Brazil
Pemstar Japan KK	Japan
Pemstar Israel Ltd.	Israel

* Incorporated on April 24, 2006

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated May 18, 2006 accompanying the consolidated financial statements included in the Annual Report of Pemstar Inc. on Form 10-K for the years ended March 31, 2006 and 2005. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Pemstar Inc. on Forms S-8 (File No. 333-44044, File No. 333-97517 and File No. 333-112974) and Forms S-3 and amendment (File No. 333-75284 and File No. 333-97511).

	/s/ Grant Thornton LLP
Minneapolis, Minnesota
June 22, 2006

EX-23.2

EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement (Form S-8, No. 333-44044) pertaining to the Pemstar Inc. 1994 Stock Option Plan, Pemstar Inc. 1995 Stock Option Plan, Pemstar Inc. 1997 Stock Option Plan, Pemstar Inc. 1999 Amended and Restated Stock Option Plan, Pemstar Inc. 2000 Stock Option Plan and 2000 Employee Stock Purchase Plan, the Registration Statement (Form S-3, No. 333-75284) pertaining to Common Stock, Preferred Stock, Debt Securities, Depository Shares, Securities Warrants and Units, the Registration Statement (Form S-8, No. 333-97517) pertaining to the Pemstar Inc. 2000 Employee Stock Purchase Plan and Pemstar Inc. 2002 Stock Option Plan, the Registration Statement (Form S-3, No. 333-97511) pertaining to Common Stock and the Registration Statement (Form S-8, No. 333-112974) pertaining to the Pemstar Inc. 2002 Employee Stock Purchase Plan of our report dated May 7, 2004, except for paragraph 4 in Note 1, as to which the date is June 20, 2006 with respect to the March 31, 2004 consolidated financial statements and schedule of Pemstar Inc. included in this Annual Report (Form 10-K) for the year ended March 31, 2006.

/s/ Ernst & Young LLP

Minneapolis, Minnesota

June 22, 2006

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Allen J. Berning, certify that:

1. I have reviewed this annual report on Form 10-K of Pemstar Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 22, 2006

/s/ Allen J. Berning

Allen J. Berning

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Greg S. Lea, certify that:

1. I have reviewed this annual report on Form 10-K of Pemstar Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 22, 2006

/s/ Greg S. Lea

Greg S. Lea

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION

I, Allen J. Berning, Chief Executive Officer of Pemstar Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Annual Report on Form 10-K of the Company for the annual period ended March 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: June 22, 2006

/s/ Allen J. Berning

Allen J. Berning

Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION

I, Greg S. Lea, Chief Financial Officer of Pemstar Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Annual Report on Form 10-K of the Company for the annual period ended March 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: June 22, 2006

/s/ Greg S. Lea

Greg S. Lea

Chief Financial Officer