Remec Liquidating Trust 10Q 2007 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 3, 2006

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number 1-16541

REMEC, INC.

(Exact name of registrant as specified in its charter)


CALIFORNIA		95-3814301
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

3790 VIA DE LA VALLE, SUITE 311 DEL MAR, CALIFORNIA		92014
(Address of principal executive offices)		(Zip Code)

(858) 259-4302

(Registrant’s telephone number, including area code)

Indicate by check 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 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 Securities Exchange Act of 1934.

Large Accelerated Filer ¨ Accelerated Filer x Non-Accelerated Filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). YES ¨ NO x

Indicate number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:


Class		Outstanding as of: December 1, 2006
Common Stock, $.01 par value		30,030,975

REMEC, Inc.

Form 10-Q

For The Quarterly Period Ended November 3, 2006


Index		Page No.
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements:	3
	Condensed Consolidated Statements of Net Assets in Liquidation	3
	Condensed Consolidated Statements of Changes in Net Assets in Liquidation	4
	Condensed Consolidated Statements of Operations (Going Concern Basis)	5
	Condensed Consolidated Statement of Cash Flows (Going Concern Basis)	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Qualitative and Quantitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	26
Item 6.	Exhibits	29

SIGNATURES		30

CERTIFICATIONS

EXHIBITS
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” “the Company” and “REMEC” refer to REMEC, Inc., a California corporation and its wholly-owned subsidiaries.

Forward-Looking Statements

This Quarterly Report on Form 10-Q 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. Forward-looking statements represent our current expectations, assumptions, estimates and projections about REMEC and include, but are not limited to, the following:

•

any statements regarding the execution, timing and expenses associated with the complete dissolution of REMEC;

•

any statements regarding the disposition of our existing assets;

•

any statements regarding the resolution of outstanding creditor claims and the ongoing litigation against us;

•

any statements regarding the amount of future liquidating distributions, if any, and the timing thereof, to our shareholders.

Forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, as more fully described elsewhere in this report. Readers are urged to carefully review and consider the various disclosures we make, which attempt to advise them of the factors that affect our business, including without limitation, the disclosures made under Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and under Part II, Item 1A, “Risk Factors” included herein and throughout our Annual Report on Form 10-K for the year ended January 31, 2006. The important factors listed in these disclosures, which could cause our actual results to differ materially from the forward-looking statements contained herein, include but are not limited to, the following:

•

our ability to accurately estimate the expenses associated with executing our plan of complete liquidation and dissolution; and

•

our ability to successfully resolve all our outstanding or future, creditor claims and litigation.

We do not intend to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future, except as otherwise required pursuant to our on-going reporting obligations under the Securities Exchange Act of 1934, as amended.

PART I—FINANCIAL INFORMATION

The accompanying interim financial statements of REMEC, Inc. for the three and nine months ended November 3, 2006 and for the periods from July 30, 2005 to September 2, 2005 and from February 1, 2005 to September 2, 2005 are required to be filed with this Form 10-Q Quarterly Report were prepared by management without audit and commence on the following page, together with the related notes. These interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended January 31, 2006 included in our fiscal year end January 31, 2006 Annual Report on Form 10-K, previously filed with the Securities and Exchange Commission, or the SEC.

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

REMEC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION

(in thousands)


	November 3, 2006 (unaudited)		January 31, 2006
ASSETS
Cash and cash equivalents	$	72,408	$	87,603
Restricted cash		19,523		20,629
Receivables and other current assets		5,924		6,150
Other long term assets		2,433		1,595

Total assets		100,288		115,977

LIABILITIES
Estimated costs to be incurred during liquidation		4,410		11,497
Estimated litigation costs		1,178		16,702
Estimated purchase price adjustments and indemnification costs		9,309		6,261
Estimated taxes payable		7,250		28,700
Estimated lease settlement costs		1,188		5,202

Total liabilities		23,335		68,362

Net assets in liquidation	$	76,953	$	47,615

See accompanying notes.

REMEC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION

(in thousands)

(unaudited)


	Three months ended November 3, 2006			Nine months ended November 3, 2006
Net assets in liquidation, beginning of period	$	66,562		$	47,615
Decreases in reserves by payments of liabilities increasing net assets in liquidation:
Payments of litigation costs		357			10,570
Payments of lease settlement costs		251			4,224
Payments of indemnification costs		40			378
Payments of tax liabilities		4,013			5,333
Payments of liquidation costs		919			9,986

		5,580			30,491

Changes in estimated fair value of assets and liabilities:
Change in estimated litigation costs		242			4,954
Change in estimated lease settlement costs		(183	)		(210	)
Change in estimated purchase price adjustments and indemnification costs		(805	)		(3,185	)
Change in estimated tax obligations		4,237			16,117
Change in estimated assets and liabilities during liquidation		1,320			(18,829	)

Net increase (decrease) in estimated fair value of assets and liabilities		4,811			(1,153	)

Changes in net assets in liquidation		10,391			29,338

Net assets in liquidation, end of period	$	76,953		$	76,953

See accompanying notes.

REMEC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (GOING CONCERN BASIS)

(In thousands, except per share data)

(unaudited)


	For the period from July 30, 2005 to September 2, 2005		For the period from February 1, 2005 to September 2, 2005
Net sale	$	—	$	—
Costs of sales		—		—

Gross profit		—		—
Operating expenses		—		—

Income (loss) from continuing operations	$	—	$	—
Income from discontinued operations including gain/(loss) on disposal, net tax		37,847		221,391

Net income	$	37,847	$	221,391

Basic net income per common share:
Income (loss) from continuing operations	$	—	$	—
Income from discontinued operations		1.33		7.88

	$	1.33	$	7.88

Diluted net income per common share:
Income (loss) from continuing operations	$	—	$	—
Income from discontinued operations		1.19		7.44

	$	1.19	$	7.44

Shares used in computing net income per common share:
Basic		28,474		28,084

Diluted		31,927		29,775

See accompanying notes.

REMEC, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (GOING CONCERN BASIS)

(in thousands)

(unaudited)


	For the period from February 1, 2005 to September 2, 2005
OPERATING ACTIVITIES
Net income	$	221,391
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,477
Gain in sale of discontinued operations		(232,136	)
Unrealized loss on foreign currency hedging/forward contracts		(18	)
Stock-based compensation		3,678
Changes in operating assets and liabilities:
Accounts receivable and other receivables		(1,002	)
Inventories		5
Prepaid expenses and other current assets		819
Accounts payable		1,481
Accrued expenses, income taxes payable and other long-term liabilities		8,408

Net cash provided by operating activities		12,103
INVESTING ACTIVITIES
Additions to property, plant and equipment		(9,890	)
Proceeds from the sale of discontinued operations, net		403,114
Change in restricted cash		(6,574	)
Short-term investments, sales		5,139
Short-term investments, purchases		(107,415	)
Other assets		(292	)

Net cash provided by investing activities		284,082
FINANCING ACTIVITIES
Proceeds from the issuance of short-term notes payable		500
Distributions to shareholders		(177,000	)
Proceeds from issuance of common shares, net		4,374

Net cash used in financing activities		(172,126	)
Effect of exchange rate changes on cash		50

Increase in cash and cash equivalents		124,109
Cash and cash equivalents at beginning of period		32,239

Cash and cash equivalents at end of period	$	156,348

See accompanying notes.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. The Company and Recent Developments

On July 21, 2005, our Board of Directors approved the liquidation and dissolution of REMEC, Inc. (the “Company” or “REMEC”) pursuant to a Plan of Complete Liquidation and Dissolution (the “Plan of Dissolution”), intended to allow for the orderly disposition of the Company’s remaining assets and liabilities. At our August 31, 2005 special meeting of shareholders, the holders of a majority of our outstanding shares approved the Plan of Dissolution. The Company completed the sale of its Wireless Systems business, which was the last operating business unit of the Company, to Powerwave Technologies, Inc. (“Powerwave”) on September 2, 2005, as described below. The key features of the Plan of Dissolution include (1) ceasing to conduct normal business operations, except as may be required to wind up our business affairs; (2) attempting to convert all of our remaining assets into cash or cash equivalents in an orderly fashion; (3) paying or adequately providing for payment for all of our known obligations and liabilities; (4) filing a certificate of dissolution for REMEC, Inc. and the remaining REMEC businesses with their respective jurisdictions of formation or incorporation; and (5) distributing pro rata, in one or more liquidating distributions, all of our remaining assets to our shareholders as of the applicable record date.

REMEC will continue in existence until its final dissolution, which may occur, subject to settlement of outstanding litigation and the payment of liabilities, during the fiscal year ending January 31, 2008 at which time all remaining assets and liabilities may be transferred to a liquidating trust. However, the Board of Directors may determine to not retain a third party liquidator or trustee until such time as our outstanding litigation and other significant creditor claims have been resolved. Our Plan of Dissolution gives us the power to retain a third party liquidator or trust without further approval by our shareholders at the discretion of our Board of Directors.

In connection with the adoption of the Plan of Dissolution and the anticipated liquidation of the Company, we adopted the liquidation basis of accounting effective September 3, 2005, whereby assets are valued at their estimated net realizable cash values and liabilities are stated at their estimated settlement amounts.

On October 10, 2005, we provided a delisting notice to the Nasdaq National Market (Nasdaq) and voluntarily requested that our common stock be de-listed from Nasdaq as of October 13, 2005, with the last trading day being October 12, 2005. Since our common stock was de-listed from Nasdaq and we closed our stock records on October 13, 2005, our shares have continued to trade on the National Association of Securities Dealers (NASD) Over-the-Counter Bulletin Board (OTCBB) exchange. From time to time, trading volume in our shares has been relatively high, and our shares have traded at prices in excess of the highest price we have estimated for potential liquidation distributions. Traders in our shares are cautioned that our shares are highly speculative, and we cannot predict with any accuracy when, or if, additional liquidation distributions will be made, or the amounts of any such distributions.

On October 19, 2006, we announced that our Board of Directors approved a cash liquidating distribution of $0.75 per share to shareholders of record on November 1, 2006. On November 8, 2006, a cash liquidating distribution was made to all shareholders of record on November 1, 2006 at a rate of $0.75 per share, totaling $22.5 million.

Based on our projections of operating expenses and liquidation costs as of November 3, 2006, we estimate that after the payment of the $0.75 per share liquidating cash distribution on November 8, 2006, the remaining amount of additional future liquidating distributions will range between $0.30 and $1.80 per share of common stock. The actual amount available for distribution, if any, could be substantially less if we discover or third parties assert additional liabilities or claims or we incur unexpected or greater than expected expenses related to existing and future claims and liabilities, or more if we are able to favorably resolve creditor claims, litigation and other liabilities and obligations in a manner more favorable than we currently estimate. Uncertainties as to the precise net value of our non-cash assets, and the ultimate amount of our liabilities make it impracticable to predict the aggregate net value that may ultimately be distributed to shareholders. Claims, liabilities and future expenses for operations, although currently declining in the aggregate, will continue to be incurred with execution of the Plan of Dissolution. These costs will reduce the amount of net assets available for ultimate distribution to shareholders. Although we do not believe that a precise estimate of those expenses can currently be made, we believe that available cash and amounts received from liquidation of non-cash assets will be adequate to provide for our obligations, liabilities, operating costs and claims, and to make cash distributions to shareholders. If available cash and amounts received from liquidation of non-cash assets are not adequate to provide for our obligations, liabilities, operating costs and claims, estimated future distributions of cash to our shareholders may not be possible.

Although our Board of Directors has not established a firm timetable for future liquidating distributions, the Board of Directors intends to, subject to contingencies inherent in winding up our business, make such distributions as promptly as practicable and periodically as we convert our remaining assets to cash and pay or otherwise resolve our remaining liabilities and obligations in accordance with applicable law.

2. Summary of Significant Accounting Policies

Interim Financial Data

The interim condensed consolidated financial statements included herein have been prepared by REMEC without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, normally included in annual financial statements, have been condensed or omitted pursuant to such SEC rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended January 31, 2006, included in REMEC’s Annual Report on Form 10-K. In the opinion of management, the condensed consolidated financial statements included herein reflect all adjustments, consisting of normal recurring adjustments and other adjustments related to our liquidation, necessary to present fairly the consolidated financial position of REMEC as of November 3, 2006. As a result, operations for the interim periods are not indicative of the results, which may be reported for any other interim periods or for the entire fiscal year.

Reclassifications

Certain reclassifications have been made to prior year amounts in order to conform to the discontinued operations presentation. As of November 3, 2006, all REMEC operating business units have been sold and are reported as discontinued operations for all periods presented.

Basis of Presentation

The condensed consolidated financial statements for the period from July 30, 2005 to September 2, 2005 and from February 1, 2005 to September 2, 2005 were prepared on the going concern basis of accounting, which contemplates realization of assets and satisfaction of liabilities in the normal course of business. As a result of obtaining shareholder approval of its Plan of Dissolution and the imminent nature of liquidation, the Company adopted the liquidation basis of accounting for all periods subsequent to September 2, 2005. This basis of accounting is considered appropriate when, among other things, liquidation of a company is probable and the net realizable values of assets are reasonably determinable. Under this basis of accounting, assets are valued at their estimated net realizable values and liabilities are stated at their estimated settlement amounts.

Use of Estimates and Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported results of operations during the reporting period. The liquidation basis of accounting requires us to make assumptions, judgments and estimates that can have a significant impact on our reported net assets in liquidation. We base our assumptions, judgments and estimates on the most recent information available and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis we evaluate our assumptions, judgments and estimates and make changes accordingly. We believe that the assumptions, judgments and estimates involved in the accounting for the Estimated Costs to be Incurred During Liquidation and Taxes Payable, Estimated Litigation Costs, Estimated Purchase Price Adjustments and Indemnification Costs and Estimated Lease Settlement Costs have the greatest potential impact on our consolidated financial statements, so we consider these estimates to be our critical accounting policies. We discuss below the critical accounting estimates associated with these policies.

Estimated Costs to be Incurred During Liquidation and Taxes Payable

Under the liquidation basis of accounting, we accrue for the remaining costs to be incurred during liquidation, including severance for our remaining employees, board fees, insurance and claims expense and miscellaneous other costs, partially offset by estimated future interest earnings. As of November 3, 2006, such costs were estimated at $4.4 million and taxes payable were estimated at $7.3 million. Our estimates are based on assumptions regarding costs to be incurred in executing the Plan of Dissolution, as described above. If there are delays in executing the Plan of Dissolution, actual costs incurred during liquidation may increase, reducing net assets available in liquidation. Our reported results may be subject to final examination by taxing authorities. Because many transactions are subject to varying interpretations of the applicable federal, state or foreign tax laws, our reported tax liabilities and taxes may be subject to change at a later date upon final determination by taxing authorities. The impact of this final determination on our estimated tax obligations could increase or decrease amounts of cash available for distribution to our shareholders, perhaps significantly.

Estimated Litigation Costs

Under the liquidation basis of accounting, we accrue for estimated litigation costs. Estimated litigation costs, which amounted to approximately $1.2 million as of November 3, 2006, represent both estimated future legal fees and costs to be incurred and estimated amounts that may be paid in settlement or by way of final judgment. Included in this amount is approximately $0.4 million self insured retention with one of our primary insurance carriers.

During the second quarter of fiscal 2007, the Company settled claims with 3G Infrastructure Services, AB (“3GIS”) and Vodafone Sverige which was acquired by Telenor ASA. During the third quarter of fiscal 2007, the Company settled claims with Peter Zanni (“Zanni”) and with Chelton Microwave (“Chelton”). These claims had been previously accrued at January 31, 2006. The Company continues to vigorously defend its other current litigation and claims. Our continued litigation activities may result in a lesser or greater amount than our current estimate, affecting net assets in liquidation. We are not aware of, and have not accrued for, any other material outstanding litigation other than what is more fully described in Note 7 as of November 3, 2006.

Estimated Purchase Price Adjustments and Indemnification Costs

Under the liquidation basis of accounting, we accrue for estimated purchase price adjustments and indemnification costs. As of November 3, 2006, such costs were estimated at $9.3 million. This balance includes approximately $1.4 million of cash collections received from former customers of the Company. During the fiscal year ended January 31, 2006, the Company provided certain indemnifications under the terms of its asset purchase agreements in regards to the divestment of the Company’s business units. These indemnity provisions were secured, in part, by escrow accounts from the sale proceeds of such transactions. Other estimated indemnity costs include provisions for the settlement of related expenses associated with the divested business units including post closing adjustments.

Estimated Lease Settlement Costs

Under the liquidation basis of accounting, we accrue for estimated lease settlement costs. Estimated lease settlement costs, which amounted to $1.2 million as of November 3, 2006, represent the settlement value on our two remaining facilities, net of estimated sublease rental income.

3. Net Income (Loss) Per Share

Prior to the adoption of our Plan of Dissolution, we reported net income (loss) per share in accordance with SFAS No. 128, Earnings per Share. Basic net income (loss) per share was computed using the weighted average shares outstanding for each period presented. Diluted income (loss) per share was computed using the weighted average shares outstanding plus potentially dilutive common shares using the treasury stock method at the average market price during the reporting period.

Dilutive securities include options and restricted stock units as if converted and restricted stock subject to vesting.

Net income per share is calculated as follows (in 000’s, except per share data):


	For the period from July 30, 2005 to September 2, 2005		For the period from February 1, 2005 to September 2, 2005
Net income applicable to common shareholders	$	37,847	$	221,391
Net income per share:
Basic	$	1.33	$	7.88
Diluted	$	1.19	$	7.44
Weighted average shares outstanding
Basic		28,474		28,084
Effect of dilutive stock options		3,453	��	1,691

Diluted		31,927		29,775

4. Stock-Based Compensation

Prior to the adoption of our Plan of Dissolution, as permitted by SFAS No. 123,Accounting for Stock-Based Compensation,and SFAS No. 148,Accounting for Stock-Based Compensation Transition and Disclosure,we had elected to follow Accounting Principles Board Opinion, or APB, No. 25,Accounting for Stock Issued to Employees,and related interpretations in accounting for

our employee stock options. Under APB No. 25, compensation expense was recorded when the exercise price of employee stock options was less than the fair value of the underlying stock on the date of grant. We had implemented the disclosure only provisions of SFAS No. 123 and SFAS No. 148. Accordingly, employee and director compensation expense for the period from July 30, 2005 to September 2, 2005 and for the period from February 1, 2005 to September 2, 2005 was recognized only for those options whose price was less than fair market value at the measurement date.

Pro forma information regarding net income (loss) per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options and employee stock purchase plan shares under the fair value method of that statement. The pro forma effects of stock-based compensation on net income (loss) and net earnings (loss) per common share have been estimated at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable.

The following is a summary of the pro forma effects on reported net income per share for the period indicated as if the Company had elected to recognize compensation expense based on the fair value of the options at their grant date as prescribed by SFAS No. 123. For purposes of the pro forma disclosures, the estimated fair value of the options and the shares granted under the employee stock purchase plan is amortized to expense over their respective vesting or option periods.

Pro forma information is as follows (in 000’s, except per share data):


	For the period from July 30, 2005 to September 2, 2005			For the period from February 1, 2005 to September 2, 2005
Net income, as reported	$	37,847		$	221,391
Add: Stock-based employee compensation expense included in net income, net of related tax effects		2,009			3,678
Deduct: Total stock-based employee compensation expense determined under fair value based method, net of related tax effects		(2,189	)		(4,408	)

Pro forma net income	$	37,667		$	220,661

Net income per share:
As reported – Basic	$	1.33		$	7.88
As reported – Diluted	$	1.19		$	7.44
Pro forma – Basic	$	1.32		$	7.86
Pro forma – Diluted	$	1.18		$	7.41

The fair value of options granted under our employee stock option plans and purchase rights granted under our employee stock purchase plan for the period from July 30, 2005 to September 2, 2005 and for the period from February 1, 2005 to September 2, 2005 were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:


	For the period from July 30, 2005 to September 2, 2005		For the period from February 1, 2005 to September 2, 2005
Dividend yield	None		None
Risk-free interest rate	4.1	%	3.9	%
Expected volatility	27.8	%	80.6	%
Expected life	4-5 years		4-5 years

Forfeitures are estimated at the date of grant based on historical rates and reduce the compensation expense recognized. The expected term of options granted is derived from historical data on employee exercises. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. Expected volatility is based on the historical volatility of the Company’s stock.

Effective February 1, 2006, the Company adopted the provision of SFAS No. 123(R),Share-Based Payments, using the modified prospective method. SFAS No. 123(R) requires employee stock options and rights to purchase shares under stock participation plans to be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value. Accordingly, share-based compensation is measured at the grant date, based on the fair value of the award. The Company previously accounted for awards granted under its equity incentive plans under the intrinsic value method prescribed by APB No. 25,Accounting for Stock Issued to Employees, and related interpretations, and provided the required pro forma disclosures prescribed by SFAS No. 123.

Under the modified prospective method of adoption for SFAS No. 123(R), the compensation cost recognized by the Company beginning February 1, 2006 includes (a) compensation cost for all equity incentive awards granted prior to, but not yet vested as of February 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all equity incentive awards granted subsequent to February 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). The Company’s financial results for the prior periods have not been restated.

Activity and pricing information regarding all our options to purchase shares of common stock are summarized as follows (in 000’s, except per share data):


	Options		Weighted average exercise price		Weighted average remaining contractual term (in years)	Aggregate intrinsic value
Outstanding at January 31, 2006	8,588		$	1.87	1.2	$	210
Granted	—			—	—		—
Expired	(6,401	)		1.91	0.2		78
Exercised	(1,427	)		1.25	0.7		2
Exchanged	—			—	—		—
Forfeited/canceled	—			—	—		—

Outstanding at November 3, 2006	760		$	2.59	2.3	$	160

Outstanding exercisable at November 3, 2006	760		$	2.59	2.3	$	160

During the nine months ended November 3, 2006, the Company awarded no stock options and thus, recorded no compensation expense related to stock options after the adoption of SFAS No. 123(R). In addition, there were no option awards modified or repurchased after January 31, 2006.

The adoption of SFAS No.123(R) did not have a material effect on the Company’s financial statements.

Stock Options Exercised

During the period February 1, 2005 to September 2, 2005, cash flows generated from share-based compensation arrangements amounted to $3.7 million, for the purchase of shares upon exercise of options.

During the nine months ended November 3, 2006, the Company issued a total of 976,595 shares of common stock upon exercise of stock options by employees and Company directors. Total proceeds received were $1.0 million. The Company did not enter into any share-based compensation arrangements during this period.

5. Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents. Cash equivalents are comprised of money market funds, U.S. government and other corporate debt securities. Cash and cash equivalents totaled $72.4 million and $87.6 million as of November 3, 2006 and January 31, 2006, respectively.

6. Restricted Cash

Restricted cash decreased by approximately $1.1 million to $19.5 million for the nine months ended November 3, 2006. The decrease was related to the release of funds held in escrow of approximately $1.0 million including interest associated with the sale of our ODU business unit in fiscal 2006 and approximately $0.6 million related to the release of the letter of credit as part of the lease requirement on our Sunnyvale facility which was sold in fiscal 2006. Restricted cash includes $15.6 million (including interest) held in escrow related to the sale of our Wireless Systems business sold to Powerwave Technologies, Inc. to satisfy REMEC’s potential indemnification obligations. The remaining balance of $3.9 million represents certificates of deposit placed to cover certain letters of credit previously secured by our receivables and inventory.

7. Commitments and Contingencies

Letter of Credit Facility

In connection with the adoption of our Plan of Dissolution, certain letters of credit that were previously secured by our domestic trade receivables and inventory are now secured by $3.9 million of restricted cash.

Operating Leases

Certain office and production facilities held by the Company and classified as operating leases were acquired by the buyers of our business units, releasing REMEC from future lease liability. The Company is working to terminate the two remaining facility leases not released with the sale transactions of our business units. Lease termination penalties may be assessed for early lease settlement based on original agreements.

During the first quarter of fiscal 2007, the Company paid lease and sublease termination fees of $2.6 million and $0.7 million, respectively, and related broker fees of $0.1 million, pursuant to termination agreements entered into in February 2006 on one of its facilities. These amounts had been previously accrued at January 31, 2006. There were no lease termination or settlement fees paid in the third quarter of fiscal 2007.

Warranty

Prior to the adoption of our Plan of Dissolution, warranty reserves were established for costs that were expected to be incurred after the sale and delivery of a product or service for deficiencies under specific product or service warranty provisions. The warranty reserves were determined as a percentage of revenues based on the actual trend of historical charges incurred over various periods, excluding any significant or infrequent issues that are specifically identified and reserved.

We released the warranty reserve for our divested product lines upon the sale of our remaining businesses. Further, warranty reserves are no longer required and have been eliminated, as the Company will not generate revenue in the future from the sale of products and services.

Indemnifications and Guarantees

Effective January 1, 2003, the recognition provisions of FASB Interpretation No. 45 (FIN 45), Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Others, were adopted, which expands previously issued accounting guidance for certain guarantees. Indemnifications issued or modified as of November 3, 2006 did not have a material effect on the consolidated financial statements. A description of the Company’s indemnifications and guarantees as of November 3, 2006 is provided below.

We have entered into separate indemnification agreements with our officers and with each of our directors. These agreements require us, among other things, to indemnify such officer and director against expenses (including attorneys’ fees), judgments, fines and settlements paid by such individual in connection with any action, suit or proceeding arising out of such individual’s status or service as our director or officer (provided that the individual acted in good faith and in a manner the individual reasonably believed to be in the best interests of the Company) and to advance expenses incurred by such individual in connection with any proceeding against such individual with respect to which such individual may be entitled to indemnification by us.

During periods prior to the Company’s adoption of the Plan of Dissolution, the Company entered into certain commercial agreements with customers and vendors and other third parties in the ordinary course of business, and pursuant to other agreements and transactions approved by the Board of Directors that contained indemnity obligations that may still be in effect.

During the third quarter of the fiscal year ended January 31, 2006, the Company provided certain indemnifications under the terms of its asset purchase agreements with Wireless U.S., LLC and Powerwave Technologies, Inc. These indemnity provisions were secured, in part, by escrow accounts holding back $1.0 million and $15.0 million, respectively, from the sale proceeds of the applicable transaction.

During the second quarter of fiscal 2007, Wireless U.S., LLC released the $1.0 million escrow holding account in total to REMEC.

Except for specific claims made under indemnification agreements, the Company is unable to reasonably estimate the maximum amount that could be payable under the remaining arrangement with Powerwave due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in such agreement. See “Claims and Litigation-Powerwave Indemnification Claims” below.

Claims and Litigation

The Company’s commitments and contingencies include the following claims and litigation:

Securities Class Action

On September 29, 2004, three class action lawsuits were filed against the Company and certain former officers (the “Defendants”) in the United States District Court for the Southern District of California alleging violations of federal securities laws between September 8, 2003 and September 8, 2004 (the “Class Period”). On January 18, 2005, the law firm of Milberg Weiss Bershad & Schulman LLP (“Milberg Weiss”) was appointed Lead Counsel and its client was appointed Lead Plaintiff.

On March 10, 2005, the Lead Plaintiff filed a Consolidated and Amended Complaint. The Consolidated and Amended Complaint asserted, among other things, that during the Class Period, the Defendants made false and misleading statements and failed to disclose material information regarding the Company’s financial condition and performance, operations, earnings and business prospects. On April 19, 2005, REMEC filed a Motion to Dismiss the Consolidated and Amended Complaint, which was granted on August 17, 2005, with leave to amend. Plaintiffs filed a Consolidated Second Amended Complaint on or about September 16, 2005. On October 28, 2005, REMEC filed a Motion to Dismiss the Consolidated Second Amended Complaint, which was granted by the Court on February 14, 2006, with leave to amend. On March 23, 2006, Plaintiffs filed a Third Amended Complaint. On April 18, 2006 the Court granted the Plaintiffs leave to further amend the Third Amended Complaint, and relieved the Defendants of the responsibility to respond to the Third Amended Complaint. On May 4, 2006, Plaintiffs filed a Fourth Amended Complaint. The Fourth Amended Complaint seeks unspecified legal expenses and damages. REMEC filed a Motion to Dismiss the Fourth Amended Complaint on June 2, 2006, which motion was denied by the Court on September 25, 2006. REMEC filed its Answer to the Fourth Amended Complaint on November 6, 2006, denying all liability and asserting certain affirmative defenses. REMEC maintains directors’ and officers’ liability insurance, and has tendered the defense of this lawsuit to its insurance carrier. The insurance carrier has agreed to provide coverage and defense of this action, subject to customary reservation of rights.

Cardinal Litigation

On November 16, 2004, a civil complaint was filed in San Diego Superior Court by Cardinal Health 301, Inc. (formerly known as Pyxis Corporation) (“Cardinal”) against Tyco Electronics Corporation (“Tyco”), Thomas & Betts Corporation and the Company alleging breach of contract and breach of express and implied warranties with regard to certain products sold by the Company’s Electronic Manufacturing Services business unit to Cardinal that incorporated allegedly defective components from Tyco and Thomas & Betts (the “Cardinal Complaint”). On March 29, 2005, after the Cardinal Complaint was successfully challenged by REMEC, Cardinal filed an amended complaint seeking $7.0 million in damages plus legal expenses. On April 7, 2005, the Company filed its answer to the amended Cardinal Complaint, denying Cardinal’s claims and asserting a number of defenses. Cardinal has increased its damages claim in the litigation to $16.5 million. Trial commenced on May 8, 2006. On June 8, 2006, the Court granted REMEC’s motion for nonsuit, made at the close of Cardinal’s case in chief, as to all causes of action. On August 8, 2006, the Court entered judgment in the case in favor of Cardinal against Tyco and Thomas & Betts, and in favor of REMEC against Cardinal on its nonsuit motion. REMEC has filed a motion to recover its costs of suit, expected to be approximately $0.08 million. All post trial motions were denied by the Court, and Cardinal filed a Notice of Appeal on REMEC’s nonsuit on October 31, 2006.

Retiree Medical Claim Arbitration

On May 11, 2006, the Company received written notice from each of two retired former officers of the Company that a claim may be asserted for breach of certain agreements with these retired officers, based on an interpretation that these former officers are entitled to lifetime medical benefits from the Company. The total of both claims exceeds $11.0 million. On or about November 13, 2006, the Company and each of the former officers agreed to a private binding arbitration to resolve this dispute.

Powerwave Claims

On May 17, 2006, in connection with the Asset Purchase Agreement dated March 13, 2005, and amended on July 11, 2005 by and among Powerwave Technologies, Inc. (“Powerwave”) and REMEC, Inc. (“REMEC”) and the related Escrow Agreement dated as of September 2, 2005 by and among Powerwave, REMEC and Greater Bay Trust Company (the “Escrow Agent”), REMEC received from Powerwave a copy of a certificate, submitted to the Escrow Agent on May 12, 2006, certifying indemnification claims potentially in excess of the escrow funds ($15.0 million) by Powerwave against REMEC, together with instructions not to release the escrow funds on the release date of June 2, 2006. REMEC is attempting to resolve these claims informally.

Other

On June 20, 2006, we received a proposed Closing Balance Sheet from Powerwave for the Wireless Systems sale transaction. The Closing Balance Sheet as proposed by Powerwave would result in a payment by REMEC to Powerwave of approximately $1.9 million in accordance with the Agreement. REMEC believes that the proposed Closing Balance Sheet is not correct, and that under a correct Closing Balance Sheet, Powerwave would be required to pay REMEC. REMEC and Powerwave are currently attempting to informally resolve their disagreements with regard to the Closing Balance Sheet for the sale transaction.

Other than the claims and lawsuits described above, neither REMEC nor any of its subsidiaries is presently subject to any material claims or litigation, nor to REMEC’s knowledge, are such claims or litigation threatened against REMEC or its subsidiaries, other than routine actions and administrative proceedings arising in the ordinary course of business, all of which collectively are not anticipated to have a material adverse effect on the financial condition of REMEC.

Environmental Matters

We follow the policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to our properties that would have a material effect on our financial condition, results of operations and cash flows. Further, we are not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.

8. Comprehensive Income (Loss)

Prior to the adoption of our Plan of Dissolution, we reported comprehensive income in accordance with SFAS No. 130,Reporting Comprehensive Income.This statement defines comprehensive income as the changes in equity of an enterprise except those resulting from shareholders transactions. Accordingly, comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss), including foreign currency translation adjustments and unrealized gains and losses on investments, shall be reported, net of their related tax effect, to arrive at comprehensive income (loss).

The components of comprehensive income, net of tax, were as follows (in 000’s):


	For the period from July 30, 2005 to September 2, 2005			For the period from February 1, 2005 to September 2, 2005
Net income	$	37,847		$	221,391
Change in net unrealized gain on investment		(110	)		17
Change in cumulative foreign currency translation adjustment		(4,146	)		(4,291	)
Change in unrealized loss on FX hedge		110			104

Comprehensive income	$	33,701		$	217,221

9. Discontinued Operations

In accordance with SFAS No. 144, the Company accounts for the results of operations of a component of an entity that has been disposed or that meets all of the “held for sale” criteria, as discontinued operations, if the component’s operations and cash flows have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction and the Company will not have any significant continuing involvement in the operations of the component after the disposal transaction. The “held for sale” classification requires having the appropriate approvals by our management, Board of Directors and shareholders, as applicable, and meeting other criteria. When all of these criteria are met, the component is then classified as “held for sale” and its operations reported as discontinued operations.

ODU/TRX Business Unit divestment

On August 26, 2005, the Company completed the sale of its ODU business unit to Wireless Holdings International, Inc., an international business company organized under the laws of the British Virgin Islands for $15 million in cash, subject to certain adjustments including a working capital-based adjustment and the assumption by Wireless Holdings of certain liabilities. The sale of the Business was made pursuant to an Asset Purchase Agreement between REMEC and Wireless Holdings dated July 26, 2005. Certain key members of the management of the Business are also investors in and active managers of Wireless Holdings. These individuals include Dave Newman, the Vice President and General Manager of the Business and Domingo Bonifacio, the President of REMEC Manufacturing Philippines, Inc. Other than the relationship of these members of management of REMEC, there are no material relationships between REMEC and Wireless Holdings. The principle used to determine the amount of consideration issued was the fair market value of the assets being sold and liabilities being assumed, which was determined by arms-length negotiations.


$ in 000’s
Proceeds from sale	$	15,000
Transaction expenses:
Investment banker fees		304
Transaction and other related costs		1,009

Total expenses		1,313

Net proceeds		13,687
Net assets sold		17,494

(Loss) on sale before tax		(3,807	)
Estimated income tax		—

(Loss) on sale after tax	$	(3,807	)

Wireless Divestment

On September 2, 2005, REMEC completed the sale of its Wireless Systems business, including certain RF conditioning products, filters, tower-mounted amplifiers and RF power amplifiers, as well as its manufacturing facilities in Costa Rica, China and the Philippines, to Powerwave Technologies, Inc. (“Powerwave”) for 10 million shares of Powerwave common stock and $40 million in cash, subject to certain post-closing adjustments. $15 million of the cash consideration is held in escrow for a period of nine months to satisfy REMEC’s potential indemnification obligations to Powerwave. The sale of the Wireless Systems business assets resulted in REMEC divesting the majority of its remaining operating assets and liabilities and required shareholder approval.


$ in 000’s
Proceeds from sale	$	146,550
Transaction expenses:
Investment banker fees		1,711
Transaction and other related costs		2,235
Other divestment related costs and accruals		16,530

Total expenses		20,476

Net proceeds		126,074
Net assets sold		71,653

Gain on sale before tax	$	54,421
Estimated income tax		11,200

Gain on sale after tax	$	43,221

Total REMEC is considered to be discontinued operations as of September 2, 2005.

Discontinued operations for the period July 30, 2005 to September 2, 2005 were as follows:

Operating Results Data


$ in 000’s	Nanowave		Components		China			Defense & Space		EMS			ODU			Wireless			Total
Revenues	$	—	$	—	$	—		$	—	$	37		$	2,131		$	26,800		$	28,968
Costs and expenses		—		—		—			—		(44	)		(2,259	)		(28,079	)		(30,382	)
Interest and debt expense		—		—		—			—		—			—			(129	)		(129	)

Income (loss) before income taxes		—		—		—			—		(7	)		(128	)		(1,408	)		(1,543	)
Provision (credit) for income taxes		—		—		—			—		—			—			12			12

Income (loss) from discontinued operations, net of income taxes		—		—		—			—		(7	)		(128	)		(1,396	)		(1,531	)

Gain (loss) on disposal of discontinued operations, net of income taxes		94		—		(131	)		1		—			(3,807	)		43,221			39,378

Net income (loss) from discontinued operations, net of income taxes	$	94	$	—	$	(131	)	$	1	$	(7	)	$	(3,935	)	$	41,825		$	37,847

Discontinued operations for the period February 1, 2005 to September 2, 2005 were as follows:

Operating Results Data


	Nanowave		Components		China			Defense & Space			EMS			ODU			Wireless			Total
Revenues	$	—	$	—	$	—		$	33,027		$	22,436		$	18,182		$	168,582		$	242,227
Costs and expenses		—		—		—			(27,027	)		(21,067	)		(20,555	)		(181,185	)		(249,834	)
Interest and debt expense		—		—		—			138			—			—			(2,769	)		(2,631	)

Income (loss) before income taxes		—		—		—			6,138			1,369			(2,373	)		(15,372	)		(10,238	)
Provision (credit) for income taxes		—		—		—			—			—			—			(507	)		(507	)

Income (loss) from discontinued operations, net of income taxes		—		—		—			6,138			1,369			(2,373	)		(15,879	)		(10,745	)

Gain (loss) on disposal of discontinued operations, net of income taxes		94		34		(144	)		191,206			1,532			(3,807	)		43,221			232,136

Net income (loss) from discontinued operations, net of income taxes	$	94	$	34	$	(144	)	$	197,344		$	2,901		$	(6,180	)	$	27,342		$	221,391

10. Taxes

Estimated taxes payable are $7.3 million as of November 3, 2006. Our estimates are based on assumptions regarding our ability to settle outstanding obligations to creditors and favorably resolve outstanding litigation; claims and liabilities, including indemnification and other claims from Powerwave See Note 7- Commitments and Contingencies. If there are delays, or we are not successful, in achieving these objectives, actual costs incurred during liquidation including litigation costs may increase, affecting our ultimate tax liability and reducing net assets available in liquidation.

During fiscal year ended January 31, 2006, the Company divested all its remaining business units in a number of individual asset and stock transactions. The preliminary purchase price allocations attributable to each transaction are subject to change and may be adjusted based upon resolution of several matters including, but not limited to, determination of the post-closing adjustments and the consequent effect upon the final purchase price, determination of final liabilities relating to each transaction and the determination of the tax basis of divested assets and liabilities. As a result of the Company’s continued analysis of its tax contingencies it was determined that its estimated taxes payable for tax year 2005 was favorably reduced. The Company finalized its tax year 2005 returns during the third quarter of fiscal 2007, reducing the Company’s estimated taxes payable.

Our reported results may be subject to final examination by taxing authorities. Because many transactions are subject to varying interpretations of the applicable federal, state or foreign tax laws, our reported tax liabilities and taxes may be subject to change at a later date upon final determination by the taxing authorities. The impact of this final determination on our estimated tax obligations could increase or decrease amounts of cash available for distribution to our shareholders, perhaps significantly.

11. Subsequent Events

On October 19, 2006, the Board of Directors approved a cash liquidating distribution of approximately $22.5 million, or $0.75 per share to shareholders of record as of November 1, 2006 pursuant to our Plan of Dissolution. On November 8, 2006, a cash liquidating distribution was made to all shareholders of record as of November 1, 2006 at a rate of $0.75 per share, totaling $22.5 million.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and notes appearing elsewhere in this Form 10-Q. Such financial statements and information have been prepared to reflect our net assets in liquidation as of November 3, 2006 and January 31, 2006 (liquidation basis), together with the changes in net assets for the three and nine months ended November 3, 2006 (liquidation basis), and the results of operations and cash flows for the periods from July 30, 2005 and September 2, 2005 (going concern basis) and from February 1, 2005 to September 2, 2005 (going concern basis).

Forward-Looking Statements

Historical results and trends should not be taken as indicative of future operations. Our statements contained in this report that are not historical facts are 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. Actual results may differ materially from those included in the forward-looking statements. We intend these forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements, which are based on our assumptions and describe future plans, strategies and expectations for ourselves, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “prospects,” or similar expressions as well as any statements referring to our Plan of Dissolution. Our ability to predict results or the actual effect of our future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and our future prospects on a consolidated basis include, without limitation, the following: our ability to successfully resolve all our outstanding creditor claims and ongoing litigation, predictions of the amount of liquidating distributions to be received by shareholders; statements regarding the timing of asset dispositions and the sales price we will receive for assets, the effect of the liquidation, the availability of settling property lease agreements, the absence of future material litigation and the implementation and completion of our Plan of Dissolution. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC. We do not intend to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future, except as otherwise required pursuant to our on-going reporting obligations under the Securities Exchange Act of 1934, as amended.

Overview

In March 2005, we entered into a definitive agreement to sell selected assets and liabilities of our Wireless Systems business, including certain RF conditioning products, filters, tower-mounted amplifiers and RF power amplifiers, as well as its manufacturing facilities in Costa Rica, China and the Philippines, to Powerwave Technologies, Inc. (“Powerwave”) for 10 million shares of Powerwave common stock and $40 million in cash (less a $15 million escrow holdback), subject to certain post-closing adjustments (the “Wireless Transaction”). The transaction was subject to approval by REMEC and Powerwave shareholders, which was obtained on August 31, 2005.

On May 20, 2005, we completed the sale of our Defense & Space business to Chelton Microwave for $256 million cash after certain post-closing adjustments and the assumption of certain liabilities. The transaction required shareholder approval, which was obtained May 18, 2005 and the sale closed on May 20, 2005. In conjunction with the sale, we amended our existing Articles of Incorporation to reclassify our common stock in order to effect the distribution of a substantial portion of the proceeds from the sale of Defense & Space to our shareholders. Effective May 20, 2005, each outstanding share of common stock was converted into a fractional share of common stock which entitled the shareholder to voting rights and participation in earnings of the Company, and one share of redemption stock, which was automatically redeemed by the Company in cash. As a result of the reclassification and redemption, each holder of one share of the Company’s existing common stock at the close of trading on the Nasdaq National Market on May 20, 2005 was entitled to receive 0.446 of a new share of common stock plus $2.80 per share in cash for the redemption share.

On July 1, 2005, we completed the sale of certain assets and liabilities constituting a substantial portion of the Electronic Manufacturing Services business (“EMS” Transaction) to Veritek Manufacturing Services, LLC and Samjor Family Limited Partnership for approximately $19 million in cash, subject to certain post closing adjustments.

On August 2, 2005, we filed additional proxy material with the SEC that provided shareholders with an estimate of cash and the number of shares of Powerwave common stock that would be distributed to REMEC shareholders following the sale of REMEC’s Wireless Systems business to Powerwave. That filing indicated shareholders were ultimately expected to receive between $2.45 to $2.95 in total cash distributions and 0.333 shares of Powerwave stock for every share of REMEC stock held at the time the transaction closed. In September 2005, 10 million shares of Powerwave stock (received from the sale of our Wireless Systems business) were issued to our shareholders of record on September 13, 2005 of REMEC stock at a ratio of 0.3443 shares of Powerwave stock for every share of REMEC stock held. On October 4, 2005, an initial cash liquidating distribution was made to all shareholders of record on September 13, 2005 at a rate of $1.35 per share, totaling $39.2 million.

On August 26, 2005, we completed the sale of the Outdoor Unit/Transceiver (“ODU”) business to Wireless Holdings International, Inc. (“Wireless Holdings”), for approximately $15 million in cash (less $1 million held back in escrow), and the assumption by Wireless Holdings of certain liabilities. The sale was made pursuant to an Asset Purchase Agreement dated July 26, 2005. In the second quarter of fiscal year ending January 31, 2007, the $1 million held back in escrow was released to us in full.

On August 31, 2005, the shareholders also approved the Plan of Dissolution, intended to allow for the orderly disposition of the Company’s remaining assets and businesses. The key features of the Plan of Dissolution include (1) ceasing to conduct normal business operations, except as may be required to wind up our business affairs; (2) attempting to convert all of our remaining assets into cash or cash equivalents in an orderly fashion; (3) paying or adequately providing for payment for all of our known obligations and liabilities; (4) filing a certificate of dissolution for REMEC, Inc. and the remaining REMEC businesses with their respective jurisdictions of formation or incorporation; and (5) distributing pro rata, in one or more liquidating distributions all of our remaining assets to our shareholders as of the applicable record date.

On September 2, 2005, we sold the Wireless Systems business assets and liabilities to Powerwave, in a transaction valued at $147 million and received all consideration including the 10 million shares of Powerwave common stock. The sale of the Wireless Systems business assets resulted in the divestment by the Company of a majority of its remaining operating assets and liabilities.

On September 3, 2005, we adopted the liquidation basis of accounting pursuant to the Plan of Dissolution approved by our shareholders on August 31, 2005.

Effective at the close of business on October 12, 2005, we voluntarily de-listed our common stock from the Nasdaq National Market (Nasdaq). Since our common stock was de-listed from Nasdaq our shares have continued to trade on the National Association of Securities Dealers (NASD) Over-the-Counter “Bulletin Board” (OTCBB) exchange. Traders in our shares are cautioned that our shares are highly speculative, and we cannot predict with any accuracy when, or if, additional liquidating distributions will be made, or the amount of any such distributions.

We are in the process of finalizing the disposition of our remaining business assets, and the Company will continue in existence until our final dissolution, which may occur, subject to settlement of outstanding litigation and the payment of liabilities, during fiscal year 2008 at which time all remaining assets and liabilities may be transferred to a liquidating trust. During this period, we will not continue our business as a going concern.

Our Plan of Dissolution gives us the power to retain a third party liquidator or trust without further approval by our shareholders at the discretion of our Board of Directors. However, the Board of Directors may determine to not retain a third party liquidator or trustee until such time as our outstanding litigation and other significant creditor claims have been resolved.

On June 20, 2006, we received a proposed Closing Balance Sheet from Powerwave for the sale transaction. The Closing Balance Sheet as proposed by Powerwave would result in a payment by REMEC to Powerwave of approximately $1.9 million in accordance with the Agreement. The Company believes that the proposed Closing Balance Sheet is not correct, and that under a correct Closing Balance Sheet, Powerwave would be required to pay REMEC. REMEC and Powerwave are currently attempting to informally resolve their disagreements with regard to the Closing Balance Sheet for the sale transaction.

Based on our projections of operating expenses and liquidation costs as of November 3, 2006, we estimate that in addition to the $0.75 per share cash distribution, the remaining amount of additional future liquidating distributions will range between $0.30 and $1.80 per share of common stock. This new estimate reflects the success we have had in resolving certain liabilities and claims on terms which were more favorable to us than our original projections. The actual amount available for distribution, if any, could be substantially less if we discover or third parties assert additional liabilities or claims or we incur unexpected or greater than expected expenses related to existing and future claims and liabilities, or more if we are able to favorably resolve the remaining creditor claims, litigation and other liabilities and obligations in a manner more favorable than we currently estimate. Uncertainties as to the precise net value of our non-cash assets, and the ultimate amount of our liabilities make it impracticable to predict the aggregate net value that may ultimately be distributed to shareholders. Claims, liabilities and future expenses for operations, although currently declining in the aggregate, will continue to be incurred with execution of the Plan of Dissolution. These costs will reduce the amount of net assets available for ultimate distribution to shareholders. Although we do not believe that a precise estimate of those expenses can currently be made, we believe that available cash and amounts received from liquidation of non-cash assets will be adequate to provide for our obligations, liabilities, operating costs and claims, and to make cash distributions to shareholders. If available cash and amounts received from liquidation of non-cash assets are not adequate to provide for our obligations, liabilities, operating costs and claims, estimated future distributions of cash to our shareholders may not be possible.

Under the Plan of Dissolution, we will liquidate our assets and make liquidating distributions to shareholders. We have not established a firm timetable for future liquidating distributions to shareholders, but we intend, subject to contingencies inherent in winding up our business, to make such liquidating distributions as promptly as practicable and periodically as we convert our remaining assets to cash.

Prior to the decision to dissolve REMEC, we designed and manufactured microwave and millimeter wave subsystems used in the transmission of voice, video and data traffic over wireless communications networks. We sold our wireless systems products primarily to OEMs, which in turn integrated our products into wireless infrastructure equipment solutions sold to network service providers. In addition, we also sold certain niche products directly to network service providers. We manufactured our products at our own plants in Heredia, Costa Rica; Laguna, Philippines, and Shanghai, China.

Since the Company is in liquidation without continuing operations, the need to present future quarterly Statements of Operations and Comprehensive Income Statements as well as a Statements of Cash Flows is eliminated.

Liquidation Basis of Accounting

The accompanying interim financial statements have been prepared by us in accordance with GAAP and under the liquidation basis of accounting effective September 3, 2005, in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying unaudited financial statements reflect all adjustments, which are, in our opinion, of a normal recurring nature and necessary for a fair presentation of our financial position including net assets in liquidation, changes in net assets in liquidation, results of operations and cash flows for the interim periods. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such results may be less favorable. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our 2006 Annual Report on Form 10-K, as filed with the SEC.

Under the liquidation basis of accounting, assets are stated at their estimated net realizable values and liabilities are stated at their estimated settlement amounts, which estimates will be periodically reviewed and adjusted. Uncertainties as to the precise net value of our non-cash assets and the ultimate amount of our liabilities make it impracticable to predict the aggregate net value that may ultimately be distributable to shareholders. Claims, liabilities and future expenses for operations, although currently declining in the aggregate, will continue to be incurred with execution of the plan of dissolution. These costs will reduce the amount of net assets available for ultimate distribution to shareholders. Although we do not believe that a precise estimate of those expenses can currently be made, we believe that available cash and amounts received from sales of non-cash assets will be adequate to provide for our obligations, liabilities, operating costs and claims, and to make cash distributions to shareholders. If available cash and amounts received from sales of non-cash assets are not adequate to provide for our obligations, liabilities, operating costs and claims, estimated future distributions of cash to our shareholders will be reduced.

The valuation of assets at their net realizable value and liabilities at their anticipated settlement amounts necessarily requires many estimates and assumptions. In addition, there are substantial risks and uncertainties associated with carrying out the liquidation of the Company’s existing operations. The valuations presented in the accompanying Statement of Net Assets in Liquidation

represent estimates, based on present facts and circumstances, of the net realizable values of assets and costs associated with carrying out the dissolution and liquidation plan based on the assumptions set forth below. The actual values and costs are expected to differ from the amounts shown herein and could be greater or lesser than the amounts recorded. Accordingly, it is not possible to predict the aggregate amount that will ultimately be distributable to shareholders and no assurance can be given that the amount to be received in liquidation will equal or exceed the net assets in liquidation per share in the accompanying Statement of Net Assets in Liquidation or the price or prices at which the common stock has generally traded or is expected to trade in the future. The cautionary statements regarding estimates of net assets in liquidation set forth in the Forward-Looking Statements portion of this report are incorporated herein by reference.

Based on our projections of operating expenses and liquidation costs as of November 3, 2006, we estimate that in addition to the announced cash liquidating distribution of $0.75 per share the remaining amount of additional future liquidating distributions will range between $0.30 and $1.80 per share of common stock. The actual amount available for distribution, if any, could be substantially less if we discover additional liabilities or claims or incur unexpected or greater than expected expenses related to existing claims and liabilities, or more if we are able to favorably resolve creditor claims, litigation and other liabilities and obligations. We are subject to litigation, the outcome of which is not presently known and which may increase our expenses and reduce cash available for distribution to shareholders. In addition, we may be subject to final examination by taxing authorities; thus amounts presently estimated for taxes may vary from ultimate amounts, which may cause our final distributions to change perhaps significantly. Although our Board of Directors has not established a firm timetable for the liquidating distributions, the Board of Directors intends to, subject to contingencies inherent in winding up our business, make such distributions as promptly as practicable and periodically as we convert our remaining assets to cash and pay our remaining liabilities and obligations subject to law.

Results of Operations

Changes in Net Assets in Liquidation

Three Months Ended November 3, 2006

Net assets in liquidation increased $10.4 million for the three months ended November 3, 2006. The increase in net assets in liquidation was primarily due to the reserve decrease of $8.3 million in estimated taxes payable, which included tax payments of $4.0 million for estimated tax payments and a reduction in the estimated tax liability of $4.3 million.

Assets and liabilities related to operating liquidation costs, net, decreased $2.2 million increasing net assets in liquidation. Assets in liquidation include an increase in taxes receivable of $4.9 million related to tax year 2005, offset by a decrease in value added tax (VAT) receivable resulting from a collection on the receivable of $1.7 million. Other operating assets and liabilities, net increased $1.0 million decreasing net assets in liquidation.

Estimated litigation costs including the defense and potential settlement accrual valuations decreased $0.6 million, which include litigation costs payments of $0.3 million, which includes a payment of $0.1 million in settlement of the Wage and Hour Class Action Suit and the reduction in the estimated litigation accrual of $0.3 million increasing net assets in liquidation.

Increases in net assets in liquidation were offset by approximately $0.7 million, including a reserve increase in estimated purchase price adjustments and indemnification costs, net, decreasing net assets in liquidation.

Nine Months Ended November 3, 2006

Net assets in liquidation increased $29.3 million for the nine months ended November 3, 2006. The increase in net assets in liquidation was primarily due to the reserve decrease of $21.5 million in estimated taxes payable, which included tax payments of $5.3 million for estimated tax payments and a reduction in the estimated tax liability of $16.2 million.

Estimated litigation costs including the defense and potential settlement accrual valuations decreased $15.5 million, which include litigations costs payments of $10.6 million and the reduction in the estimated litigation accrual of $4.9 million increasing net assets in liquidation.

Estimated lease settlement costs reserve decreased $4.0 million, which include payments for facility leases, lease settlement fees and lease termination fees increasing net assets in liquidation.

Increases in net assets in liquidation were offset by approximately $11.7 million, including a reserve increase of $2.8 million in estimated purchase price adjustments and indemnification costs, net. Assets and liabilities related to operations and operating liquidation costs, net, increased $8.9 million, reducing net assets in liquidation.

Liquidity and Capital Resources

As of November 3, 2006, net assets in liquidation totaled $77.0 million, consisting of $72.4 million in cash and cash equivalents and $19.5 million of restricted cash. Restricted cash consists of approximately $15.6 million for escrow funds and interest held back in escrow pending the closing of the sale of Wireless Systems, and $3.9 million of restricted cash held as security on letters of credit. Total assets consist of $5.7 million of receivables and other current assets primarily related to an income tax receivable of $4.9 million, $2.0 million of other long-term assets primarily consisting of long-term notes receivable. Total assets are offset by $23.3 million of estimated total liabilities to be incurred during liquidation, consisting of $4.4 million of estimated operating costs (“Costs to be incurred during Liquidation”), $1.2 million of estimated lease settlement costs, $1.2 million of estimated litigation costs including the defense and resolution, $9.3 million related to estimated purchase price adjustments and indemnification costs and $7.3 million taxes payable. We expect to use our capital resources to execute and complete our Plan of Dissolution, settle existing claims against the Company, including existing litigation and other current liabilities and accrued expenses, and to make liquidating distributions to our shareholders. Capital resources available for liquidating distributions to shareholders may vary if we incur greater than estimated operating expenses associated with executing the Plan of Dissolution, actual settlement costs for existing claims against the Company vary from estimates, or if there are existing, but unknown claims made against us in the future. We intend to distribute net assets in liquidation to shareholders as liquidating distributions as promptly as practicable as we convert our remaining assets to cash. At November 3, 2006, our cash and cash equivalents were held primarily in money market funds. We expect to continue to hold our cash and cash equivalents primarily in money market funds while we execute the Plan of Dissolution.

Distributions

On August 2, 2005, we filed additional proxy material with the SEC that provided shareholders with an estimate of the cash and the number of shares of Powerwave common stock that would be distributed to REMEC shareholders following the sale of REMEC’s Wireless Systems business to Powerwave. That filing indicated shareholders were ultimately expected to receive between $2.45 to $2.95 in total cash distributions and 0.333 shares of Powerwave stock for every share of REMEC stock held at the time the transaction closed. In September 2005, 10 million shares of Powerwave stock were issued to the shareholders of record on September 13, 2005 of REMEC stock at a ratio of 0.3443 shares of Powerwave stock for every share of REMEC stock held. On October 4, 2005, an initial cash liquidating distribution was made to shareholders of record of REMEC stock on September 13, 2005 at a rate of $1.35 per share totaling $39.2 million.

Subsequent cash distributions are pending, subject to review by REMEC’s Board of Directors of the Company’s remaining obligations. Based on our projections of operating expenses and liquidation costs as of November 3, 2006, we estimate that after the payment of the $0.75 per share liquidating cash distribution on November 8, 2006, the amount of future liquidating distributions will range between $0.30 and $1.80 per share of common stock. However, the significant number of liabilities and obligations that REMEC must satisfy along with the uncertainty surrounding these obligations makes the actual amount and timing of distributions uncertain and may result in the actual cash distribution being lower or higher than the expected range. Although our Board of Directors has not established a firm timetable for the liquidating distributions, the Board of Directors intends to, subject to contingencies inherent in winding up our business, make such distributions as promptly as practicable and periodically as we convert our remaining assets to cash and pay our remaining liabilities and obligations in accordance with applicable law.

On October 10, 2005, we provided a delisting notice to the Nasdaq National Market (Nasdaq) and voluntarily requested that the Company common stock be de-listed from Nasdaq as of October 13, 2005, the last trading day being October 12, 2005. Since our common stock was de-listed from Nasdaq National Market and closed our stock records effective October 12, 2005, our shares have continued to trade on the National Association of Securities Dealers (NASD) Over-the-Counter “Bulletin Board” (OTCBB) exchange. From time to time, trading volume in our shares has been relatively high, and our shares have traded at prices in excess of the highest price we have estimated for potential liquidation distributions. Traders in our shares are cautioned that our shares are highly speculative, and we cannot predict with any accuracy when, or if, additional liquidating distributions will be made.

We may at some point determine that the continued liquidation of REMEC may be more efficiently handled by retaining a third party liquidator or trust to manage the liquidation process. In particular, we may determine to do so at such time as our outstanding litigation and other significant creditor claims have been resolved. We continue to actively manage our cash and cash equivalent portfolio and control operating expenses.

Off-Balance Sheet Arrangements

As of November 3, 2006, we did not have any other relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Obligations and Commitments

Our contractual obligations and commitments as of November 3, 2006 are reported in the condensed consolidated statements of net assets in liquidation as accrued expenses and accounts payable or estimated costs to be incurred during liquidation. The remaining obligations and commitments of the Company include two facility operating leases. The Company is working to terminate these remaining facility leases. As of November 3, 2006 the accrual for the estimated net lease settlements on the remaining facility obligations is $1.2 million.

Recently Issued Accounting Standards.

In May 2005, the FASB issued SFAS No. 154,Accounting Changes and Error Corrections, which replaces APB Opinion No. 20 and FASB Statement No. 3. This pronouncement applies to all voluntary changes in accounting principle, and revises the requirements for accounting for and reporting a change in accounting principle. SFAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle, unless it is impracticable to do so. This pronouncement also requires that a change in the method of depreciation, amortization, or depletion for long-lived, non-financial assets be accounted for as a change in accounting estimate that is affected by a change in accounting principle. SFAS No. 154 retains many provisions of APB Opinion 20 without change, including those related to reporting a change in accounting estimate, a change in the reporting entity, and correction of an error. The pronouncement also carries forward the provisions of SFAS No. 3 which govern reporting accounting changes in interim financial statements. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Statement does not change the transition provisions of any existing accounting pronouncements, including those that were in a transition phase as of the effective date of SFAS No. 154.

In June 2005, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 05-06,Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination (“EITF 05-06”). EITF 05-06 concludes that the amortization period for leasehold improvements acquired in a business combination and leasehold improvements that are in service significantly after and not contemplated at the beginning of the lease term should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date of inception. Management believes the adoption of this pronouncement will not have a material effect on the Company’s consolidated financial statements. As of November 3, 2006, this pronouncement had no impact on the Company’s consolidated financial statements.

In February 2006, the FASB Staff Position (FSP) issued FAS No. 123(R)-4,Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event. FAS 123(R)-4 concludes that a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employee’s control does not become a liability until it becomes probable that the event will occur. An option or similar instrument that is classified as equity, but subsequently becomes a liability because the occurrence of the contingent cash settlement event is probable, shall be accounted for similar to modification from an equity to liability award. To the extent that the liability exceeds the amount previously recognized in equity, the excess is recognized as compensation cost. The total recognized compensation cost for an award with a contingent cash settlement feature shall at least equal the fair value of the award at the grant date. The FSP is applicable only for options or similar instruments issued as part of employee compensation arrangements. The guidance in this FSP was applied upon initial adoption of Statement 123(R). As of November 3, 2006, this pronouncement had no impact on the Company’s consolidated financial statements.

In February 2006, the FASB issued SFAS No. 155,Accounting for Certain Hybrid Financial Instruments, an amendment of SFAS No. 133 (“Accounting for Derivative Instruments and Hedging Activities”) and SFAS No. 140 (“Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”). In this context, a hybrid financial instrument refers to certain derivatives embedded in other financial instruments. SFAS No. 155 permits fair value re-measurement of any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation under SFAS No. 133. SFAS No. 155 also establishes a requirement to evaluate interests in securitized financial assets in order to identify interests that are either freestanding derivatives or “hybrids” which contain an embedded derivative requiring bifurcation. In addition, SFAS No. 155 clarifies which interest/principal strips are subject to SFAS No. 133, and provides that concentrations of credit risk in the form of subordination are not embedded derivatives. SFAS No. 155 amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity

from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative. When SFAS No. 155 is adopted, any difference between the total carrying amount of the components of a bifurcated hybrid financial instrument and the fair value of the combined “hybrid” must be recognized as a cumulative-effect adjustment of beginning deficit/retained earnings.

SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Earlier adoption is permitted only as of the beginning of a fiscal year, provided that the entity has not yet issued any annual or interim financial statements for such year. Restatement of prior periods is prohibited. As of November 3, 2006, this pronouncement had no impact on the Company’s consolidated financial statements.

In June 2006, the FASB issued Financial Interpretation No. (FIN) 48,Accounting for Uncertainty in Income Taxes, FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109,Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The requirements of FIN 48 are effective for our fiscal year beginning February 1, 2007. We are in the process of evaluating this guidance and therefore have not yet determined the impact that the adoption of FIN 48 will have on our financial position, results of operations or cash flows.

Item 3.

Qualitative and Quantitative Disclosures About Market Risk.

Interest Rate Risk

Investments

At November 3, 2006, our investment portfolio includes cash equivalent securities held in a money market account with a recorded value of approximately $57.1 million. The Company considers all investments with original maturities of three months or less to be cash equivalents. These securities are subject to interest rate risk and might decline in value if interest rates increase. Due to their short-term nature interest rates would not materially affect their value.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our President and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Our significant personnel reductions during fiscal 2005 have affected the overall control environment. However, management does not believe that these personnel reductions have had a significant impact on the effectiveness of the operation of the Company’s disclosure controls and procedures.

Changes in Internal Controls Over Financial Reporting

There has been no change in our internal controls over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings.

Claims and Litigation

The Company’s commitments and contingencies include the following claims and litigation.

Securities Class Action

Cardinal Litigation

Retiree Medical Claim Arbitration

Powerwave Claims

Other

Environmental Matters

Item 1A.

Risk Factors.

In addition to other information in this Form 10-Q, the following risk factors should be carefully considered in evaluating us and our liquidation and dissolution because such factors may have a significant impact on the execution of our Plan of Dissolution and the timing and amount of liquidating distributions, if any, to our shareholders. As a result of the risk factors set forth below and elsewhere in this Form 10-Q, and the risks discussed in our other filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended January 31, 2006, actual results could differ materially from those projected in any forward-looking statements.

The risk factors described below do not contain any material changes from the Risk Factors described under Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended January 31, 2006, other than the additional reference to the Sarbanes-Oxley Act of 2002, regarding increased costs of compliance, specifically to public company reporting requirements.

We cannot assure you of the exact amount or timing of any future distribution to our shareholders under the Plan of Dissolution.

The liquidation and dissolution process is subject to numerous uncertainties and may not result in any capital remaining available for future distribution to our shareholders. The precise nature, amount and timing of any future distribution to our shareholders will depend on and could be delayed by, among other things, sales of our non-cash assets, claim settlements with creditors, resolution of outstanding litigation matters, new claims filed by third parties, whether our insurance policies will provide coverage for defense costs and any damages payable under our outstanding and any future litigation matters and unexpected or greater than expected expenses. We cannot assure you that we will successfully defend against the outstanding litigation matters filed against us or any new claims filed against us. In addition, regardless of the merit or eventual outcome of our existing litigation matters or any new claims may result in the expenditure of a significant amount of cash on legal fees, expenses or payment of settlements. Furthermore, we cannot provide any assurances that we will actually make additional distributions. The estimates we have provided are based on currently available information, and actual payments, if any, could be substantially less than the range we have estimated. Any amounts to be distributed to our shareholders may be less than the price or prices at which our common stock has recently traded or may trade in the future.

Our common stock is continuing to trade even though we are in the process of liquidation and liquidating distributions, if any, may be below any trading price.

Effective at the close of business on October 12, 2005, we voluntarily de-listed our common stock and closed our transfer books. Our common stock was traded on the Nasdaq National Market under the symbol “REMC.” Since the de-listing, our common stock has been trading in the Over the Counter Market’s “Bulletin Board” under the symbol “REMC.OB”. It has been trading under “due-bill” contractual obligations between the seller and purchaser of the stock, who negotiate and rely on themselves with respect to the allocation of shareholder proceeds arising from ownership of the shares. No assignments or transfers of our common stock were recorded or will be recorded after October 12, 2005. Trading in our stock is highly speculative and the market for our stock is highly illiquid. The only value associated with our shares is the right to receive further distributions as part of the liquidation process. Because of the difficulty in estimating the amount and timing of the liquidating distributions, and due to the other risk factors discussed herein, our common stock may be subject to significant volatility and may trade above the amount of any liquidating distribution that is made.

We may not be able to settle all of our obligations to creditors and resolve all of our outstanding litigation in a favorable manner.

If we do not settle all of our obligations to creditors and resolve all of our outstanding and any new litigation, we may be prevented from completing our Plan of Dissolution. Our obligations to creditors include, among other things, long-term contractual obligations, including certain product warranties to certain customers, and contractual obligations to certain of our vendors. The Company’s commitments and contingencies include claims and litigation arising out of our previous ordinary course of business and the sale of our business units and assets. As part of the wind down process, we will attempt to settle our obligations with our creditors and resolve all of the outstanding litigation. Our inability to reach settlement with our creditors and resolve outstanding litigation in a favorable manner could delay or even prevent us from completing the Plan of Dissolution. Any new claims filed by third parties could further delay us from completing the Plan of Dissolution. Amounts required to settle our obligations to creditors and resolve our outstanding and any new litigation will reduce the amount of remaining capital available for future distribution to shareholders. The amounts of settlements or damage payments, if we do not successfully defend cases that are not settled, could reduce future distributions to the lower end, or below the lower end, of our current estimated distribution range.

Some of our customers have filed or may file for breach of contract and breach of express and implied warranties with regard to products sold by the Company.

Our products consist of and incorporate numerous component parts designed and manufactured by certain former REMEC subsidiaries. We cannot assure you that these products and/or parts are free of defects or errors. Given the complex nature of our products and our dependence on a large number of highly intricate component parts, our products may contain defects or errors not detectable during our quality assurance and testing procedures. Any such defects or errors could result in legal claims against us.

We will continue to incur claims, liabilities and expenses that will reduce the amount available for distribution out of the liquidation to shareholders.

Claims, liabilities and expenses from operations, such as operating costs, directors and officers liability insurance, payroll and local taxes, legal, accounting and consulting fees and miscellaneous office expenses, will continue to be incurred as we wind down our operations and implement our Plan of Dissolution. Additionally, indemnification claims potentially in excess of $15 million have been made against funds held in escrow pending the closing of the sale of our business units. These expenses and claims may reduce the amount of assets available for future distribution out of the liquidation to shareholders. In addition, we cannot assure you that third parties will not assert additional claims or causes of action against us. If available cash and amounts received on the sale of non-cash assets are not adequate to provide for our obligations, liabilities, expenses and claims, we may not be able to distribute the amounts indicated in our current estimated distribution range or any cash at all, to our shareholders.

We may be subject to final examinations by taxing authorities across various jurisdictions which may impact the amount of taxes that we pay and the ultimate distributions to our shareholders

In evaluating the exposure associated with various tax filing positions, the Company accrues charges for probable exposures. At November 3, 2006, the Company believes it has appropriately accrued for probable exposures. To the extent the Company were to prevail in matters for which accruals have been established or be required to pay amounts in excess of these accruals, the Company’s effective tax rate in a given financial statement period could be materially affected.

Significant judgment is required in determining the Company’s provision for income taxes payable. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain.

Distribution of cash out of the liquidation, if any, to our shareholders could be delayed.

Although our Board of Directors has not established a firm timetable for future cash liquidating distributions to our shareholders, the Board of Directors intends, subject to contingencies inherent in winding up our business, to make such distributions as promptly as practicable as creditor and litigant claims are paid or settled. However, we are currently unable to predict the precise timing of any such distributions. The timing of such distributions will depend on and could be delayed by, among other things, the timing of sales of our non-cash assets, claim settlements with creditors, new claims made by third parties and the settlement or the final resolution of any outstanding or future litigation matters. Additionally, a creditor could seek an injunction against the making of such distributions to our shareholders on the grounds that the amount to be distributed was needed to provide for the payment of our liabilities and expenses. Any action of this type could delay or substantially diminish the amount available for such distribution to our shareholders.

If we fail to create an adequate contingency reserve for payment of our expenses and liabilities, each shareholder could be held liable for payment to our creditors of his or her pro rata share of amounts owed to creditors in excess of the contingency reserve, up to the amount actually distributed to such shareholder.

In the event we fail to create an adequate contingency reserve for payment of our expenses and liabilities, each shareholder could be held liable for payment to our creditors of such shareholder’s pro rata share of amounts owed to creditors in excess of the contingency reserve, up to the amount actually distributed to such shareholder.

Although the liability of any shareholder is limited to the amounts previously received by such shareholder from us (and from any liquidating trust or trusts) in the dissolution, this means that a shareholder could be required to return all distributions previously made to such shareholder and receive nothing from us under the Plan of Dissolution. Moreover, in the event a shareholder has paid taxes on amounts previously received, a repayment of all or a portion of such amount could result in a shareholder incurring a net tax cost if the shareholder’s repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable. While we will endeavor to make adequate reserves for all known and contingent liabilities, there is no guarantee that the reserves established by us will be adequate to cover all such expenses and liabilities.

We will continue to incur the expenses of complying with public company reporting requirements.

We have an obligation to continue to comply with the applicable reporting requirements of the Securities Exchange Act of 1934, as amended even though compliance with such reporting requirements is economically burdensome until the Company is fully dissolved.

In addition, we are required to comply with the Sarbanes-Oxley Act of 2002 and related laws, regulations and standards relating to corporate governance and disclosure requirements applicable to public companies. These requirements have increased the costs of compliance with corporate governance, reporting and disclosure practices which are now required of us. In addition, these laws, rules and regulations create new legal bases for administrative enforcement, and civil and criminal proceedings against us in the case of non-compliance, thereby increasing our risk of liability and potential sanctions. If we are unable to complete our Plan of Dissolution by fiscal year end 2007, we expect that our efforts to comply with these laws and regulations will involve significant costs, and any failure on our part to comply could result in fees, fines, penalties or administrative remedies, which could reduce and/or delay the amount of liquidating distributions to our shareholders under our Plan of Dissolution.

Our Board of Directors may at any time turn management of the liquidation of REMEC, Inc. over to a third party, and some or all of our directors may resign from our board at that time.

Our Board of Directors may at any time turn the management of the Company over to a third party to complete the liquidation of our remaining assets and distribute the available proceeds to our shareholders, and some or all of our directors may resign from our board at that time. If management is turned over to a third party and all of our directors resign from our board, the third party would have sole control over the liquidation process, including the sale or distribution of any remaining assets.

Items 2, 3, 4 and 5 are not applicable and have been omitted.

Item 6.

Exhibits


Exhibit Number		Description
31.1		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


REMEC, Inc.

By:		/s/ Richard A. Sackett
		Richard A. Sackett
		President

		/s/ David F. Wilkinson
		David F. Wilkinson
		Chief Financial and Accounting Officer

Date: December 13, 2006

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

Remec Liquidating Trust (REMC) Inactive 10-Q2007 Q3 Quarterly report

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