The following discussion should be read in conjunction with Item 6, "Selected Financial Data," and our historical financial statements and related notes thereto included elsewhere in this report.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements represent our current expectations, assumptions, estimates and projections about REMEC. These forward-looking statements include estimates of the net assets of the Company in liquidation, statements about the amount and timing of the payment of additional liquidating distributions and statements about the Company's operating costs through final dissolution, including the additional wind up costs, which will vary with the length of time it operates. The forward-looking statements in this report are subject to a number of other significant risks and uncertainties, and there can be no assurance that the expectations reflected in those statements will be realized or achieved. Such risks and uncertainties include, without limitation, possible contingent liabilities and post-closing indemnification and other obligations arising from the sale of the Company's remaining assets; the risk that federal, state or local taxing authorities will audit the tax returns filed by the Company resulting in additional taxes being assessed against the Company; the risk that income, sales, use and other tax returns filed by the Company prior to the divestiture of its business units might be audited by federal, state or local taxing authorities resulting in additional taxes being assessed against the Company; the risk that the Company may not be able to realize its current estimate of the net value of its assets; the risk that the Company may have underestimated the settlement expense of its obligations and liabilities, including without limitation, accrued compensation and tax liabilities; risks associated with the liquidation and dissolution of the Company, including without limitation, settlement of the Company's litigation, liabilities and obligations, costs including professional fees, incurred in connection with carrying out the Plan of Dissolution, discharge of any outstanding creditor claims, and the winding up and dissolution of the Company. See Item 1A, "Risk Factors" for additional information regarding these risks and uncertainties. In light of these risks, uncertainties and assumptions, readers are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements represent beliefs and assumptions only as of the date of this report. Except as required by applicable law, we do not intend to update or revise forward-looking statements contained in this report to reflect future events or circumstances.

Overview

During fiscal year 2005, we engaged the services of financial advisors to evaluate strategic alternatives to enhance shareholder value, which included exploring the disposition of some or all of our business units. It was determined that in the best interest of shareholder value that the Company divest all remaining product line business units. During fiscal 2006, with shareholder approval, the Company divested all its remaining business units and adopted the Plan of Dissolution, effective September 3, 2005. On May 20, 2005, the Company completed the sale of the Defense & Space group to Chelton Microwave. On July 1, 2005, the Company completed the sale of certain assets and liabilities constituting a substantial portion of the Electronic Manufacturing Services business to Veritek Manufacturing Services, LLC and Samjor Family Limited Partnership. On August 26, 2005, the Company completed the sale of the Outdoor Unit/Transceiver business to Wireless Holdings International, Inc. On September 2, 2005, the Company sold the Wireless Systems business unit to Powerwave Technologies, Inc. The Wireless Systems business was the last remaining REMEC product line business unit.

The Company is in the process of finalizing the disposition of its remaining business assets, including the completion of outstanding litigation and the payment of liabilities. During this period, we will not continue our business as a going concern.

Our Plan of Dissolution provides us with authority to retain a third party liquidator or trust without further approval by our shareholders at the discretion of our Board of Directors. We may 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 cannot predict when or if these matters will be resolved, or when or if we will engage a third party liquidator or trust.

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 and Plan of Dissolution

The accompanying financial statements have been prepared on the liquidation basis of accounting. 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. 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.

Net Assets in Liquidation

Net assets in liquidation decreased $13.5 million, or $0.45 per share, to
$24.9 million for the fiscal year ended January 31, 2009 from $38.5 million for
the year ended January 31, 2008. (In thousands, except per share data):



                                                                 Fiscal Years Ended
                                                                    January 31,
                                                                  2009         2008
 Net assets in liquidation                                     $    24,946   $ 38,495
 Number of common shares outstanding at each respective date        30,031     30,031
 Net asset value per outstanding share                         $      0.83   $   1.28

The following paragraph summarizes certain material actions and events which have occurred regarding the Company's liquidation process during the year ended January 31, 2009.

The primary reason for the decrease in net assets in liquidation for the twelve months ending January 31, 2009, was the result of the liquidating cash distribution paid to our shareholders on July 8, 2008 of approximately $15.0 million, or $0.50 per share (see Item 5, "Dividends.")

On March 10, 2009, the Company entered into a settlement agreement pursuant to which REMEC agreed to pay to Powerwave the sum of $1,960,000. As a result, the related indemnification reserve of $5.0 million was reversed and the Company recorded the agreed settlement of $1,960,000, net change of approximately $3.0 million which increased net assets in liquidation (see Item 3, "Legal Proceedings.") Additionally, during the second quarter of fiscal 2009, the Company successfully defended its Retiree Medical Claim in arbitration. On May 14, 2008, the arbitrator issued an award to the parties, and determined that none of the claimants were entitled to any recovery from the Company. As a result, the related reserve of approximately $0.5 million was reversed.

The Company increased its reserve for income taxes, net, approximately $0.2 million which decreased net assets in liquidation for the twelve months ending January 31, 2009. The change in the income tax reserve relates primarily to the increase in potential interest and penalties associated with uncertain tax positions. (See Note 2 to the financial statements, Summary of Significant Accounting Policies, under "Income Taxes".)

Other changes in net assets for the twelve months ending January 31, 2009 include the change in estimated costs to be incurred during liquidation, reserves for the remaining legal fees associated with defense, changes in lease settlement costs and operating costs associated with winding up operations of approximately $1.8 million.

Results of Operations

In connection with the adoption of the Plan of Dissolution, and the adoption of the liquidation basis of accounting for all periods subsequent to September 2, 2005, we do not generate revenue and have no supply of product available for sale, and, therefore, we do not incur cost of revenues.

Liquidity and Capital Resources

As of January 31, 2009, net assets in liquidation totaled $24.9 million. Total assets of $38.1 million include $16.4 million in cash and cash equivalents and $20.8 million of restricted cash. Restricted cash consists of approximately $16.9 million for a portion of the purchase price, with interest, held in escrow from the sale of the Wireless Systems Business unit, and $3.9 million of restricted cash held as security on letters of credit (see Note 2 to the financial statements, Summary of Significant Accounting Policies, "Restricted Cash" for events subsequent to year-end.) Receivables and other assets consist of approximately $0.8 million, which includes notes receivables of approximately $0.3 million. Total assets are offset by approximately $13.1 million of estimated total liabilities to be incurred during liquidation, consisting of approximately $7.5 million in taxes payable, approximately $2.0 million related to indemnification costs, approximately $3.5 million of estimated operating costs (see Note 2 to the financial statements, Summary of Significant Accounting Policies, "Estimated Costs to be Incurred During Liquidation and Taxes Payable,") and approximately $0.1 million of estimated litigation costs.

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 January 31, 2009, our cash and cash equivalents were held primarily in money market funds and other bank deposit accounts. 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 unit 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 approximately $39.2 million.

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 approximately $22.5 million.

On December 14, 2007, 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 the close of business on December 14, 2007 pursuant to our Plan of Dissolution. On December 21, 2007, a cash liquidating distribution was made to all shareholders of record as of December 14, 2007 at a rate of $0.75 per share, totaling approximately $22.5 million.

On June 17, 2008, the Board of Directors approved a cash liquidating distribution of approximately $15.0 million, or $0.50 per share to shareholders of record as of the close of business on June 27, 2008 pursuant to our Plan of Dissolution. On July 7, 2008, a cash liquidating distribution was made to all shareholders of record as of June 27, 2008 at a rate of $0.50 per share, totaling approximately $15.0 million.

The sources for payment of these distributions were funds made available from the settlement of liabilities and the liquidation of assets.

Subsequent cash distributions are pending, subject to review by REMEC's Board of Directors of the Company's remaining obligations. 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 from $0.15 to $0.83 per common share.

Critical Accounting Policies

Our financial statements continue to be prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to use estimates and assumptions that affect reported amounts of assets and liabilities. These estimates are subject to known and unknown risks, uncertainties and other factors that could materially impact the amounts reported and disclosed in the financial statements. We believe the following to be among the most critical judgment areas in the application of our accounting policies.

Liquidation Basis of Accounting

As a result of the approval of our Plan of Dissolution and Liquidation, we took steps to initiate our complete liquidation and as such, the information provided in this Report on Form 10-K reflects our adoption of the liquidation basis of accounting effective September 3, 2005 in accordance with accounting principles generally accepted in the United States. A Statement of Net Assets in Liquidation and a Statement of Changes in Net Assets in Liquidation are the principal financial statements presented under the liquidation basis of accounting. Under the liquidation basis of accounting, assets are stated at their estimated net realizable value, which is the non-discounted amount of cash, or its equivalent, into which an asset is expected to be converted in the due course of business less direct costs, while liabilities are reported at their estimated settlement amount, which is the non-discounted amounts of cash, or its equivalent, expected to be paid to liquidate an obligation in the due course of business, including direct costs. Additionally, under the liquidation basis of accounting, we are required to establish a reserve for future estimated general and administrative expenses and other costs expected to be incurred during the liquidation (exclusive of interest expense). These estimates will be periodically reviewed and adjusted as appropriate. There can be no assurance that these estimated values will be realized. Such amounts should not be taken as an indication of the timing or amount of future distributions or our actual dissolution.

The preparation of our financial statements in conformity with generally accepted accounting principles requires our 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. 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 indemnification costs and estimated litigation costs have the greatest potential impact on our financial statements, so we consider estimates associated with these obligations to be critical to our financial statements. 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 employee expense, insurance expense, third party services, facility lease expense partially offset by facility sub-lease income (see Note 5 to the financial statements, Commitments and Contingencies under "Leases") and miscellaneous other costs. As of January 31, 2009, such costs were estimated at approximately $3.5 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.

Taxes payable were estimated at approximately $7.5 million based on probable exposure. 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 Indemnification Costs

Under the liquidation basis of accounting, we have accrued for indemnification costs associated with the sale of our Wireless Systems business unit in fiscal 2006. As of January 31, 2009, such costs were approximately $2.0 million. (See Note 6 to the financial statements, Subsequent Event.)

Estimated Litigation Costs

Under the liquidation basis of accounting, we accrue for estimated litigation costs. Estimated litigation costs, which amounted to approximately $0.1 million as of January 31, 2009, represent estimated future legal fees and costs to be incurred.

As of January 31, 2009, we are not aware of and we have not accrued for any material outstanding litigation other than as described in Note 4 to the financial statements, Commitments and Contingencies, under "Claims and Litigation.

Recently Issued Accounting Standards

As of January 31, 2009 there were no new accounting pronouncements that had a material impact on the Company's financial statements.

Off-Balance Sheet Arrangements

As of January 31, 2009, 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 January 31, 2009 are reported in the statements of net assets in liquidation as accrued expenses and accounts payable or estimated costs to be incurred during liquidation. Obligations and commitments of the Company include facility operating leases, all of which, except for the principal executive office, are fully subleased. As of January 31, 2009 the accrual for the estimated net lease settlements on the remaining facility obligations is approximately $0.1 million net of sublease payments totaling approximately $1.9 million.