Item 3.		Legal Proceedings		5
ITEM 4.		Submission of Matters to a Vote of Security Holders		6
PART II
ITEM 5.		Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities		7
ITEM 6.		Selected Financial Data		8
ITEM 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
ITEM 7A.		Quantitative and Qualitative Disclosures About Market Risk		13
ITEM 8.		Financial Statements and Supplementary Data		13
ITEM 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		13
ITEM 9A.		Controls and Procedures		14
ITEM 9B.		Other Information		14
PART III
ITEM 10.		Directors, Executive Officers and Corporate Governance		15
ITEM 11.		Executive Compensation		17
ITEM 12.		Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters		23
ITEM 13.		Certain Relationships and Related Transactions and Director Independence		25
ITEM 14.		Principal Accounting Fees and Services		26
PART IV
ITEM 15.		Exhibits and Financial Statement Schedules		29
		Signatures		31

 

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As used in this Annual Report (including the following section regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations) on Form 10-K, 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 Annual Report on Form 10-K 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 II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and under Part I, Item 1A, “Risk Factors” included herein and throughout this Annual Report on Form 10-K for the year ended January 31, 2008. 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.

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. 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.

 

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PART I

 

Item 1.

Business.

INTRODUCTION

REMEC, Inc. (“REMEC” or the “Company” “us,” “our,” or “we”) was incorporated in California in January 1983. Our principal executive offices are located at 3790 Via de la Valle, Suite 211, Del Mar, California 92014, and the telephone number for that location is (858) 259-4302. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports and other Securities and Exchange Commission, or “SEC,” filings are electronically filed with, or furnished to, the SEC. All reports filed by REMEC, Inc. with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov. In addition, the public may read and copy materials filed by REMEC with the SEC at the SEC’s public reference room located at 100 F Street, N.E, Washington, D.C. 20549 or by calling the SEC at 1-202-551-8090. REMEC also provides access to its most recently filed reports and is available through the Company’s website at www.remec.com after filing such material with the SEC. The information contained in, or that can be viewed on our website is not part of this annual report on Form 10-K. Our common stock trades on the National Association of Securities Dealers (NASD) Over-the-Counter Bulletin Board (OTCBB) exchange under the symbol “REMC.OB.”

Overview

On July 21, 2005, our Board of Directors approved the liquidation and dissolution of REMEC, Inc. (“REMEC” or the “Company”) 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. The holders of a majority of our outstanding shares approved the Plan of Dissolution effective September 3, 2005, at our August 31, 2005 special shareholder meeting. The key features of the Plan of Dissolution include: (1) filing a certificate of dissolution for REMEC, Inc. and the remaining REMEC businesses with their respective jurisdictions of formation or incorporation; (2) ceasing conducting normal business operations, except as may be required to wind up our business affairs; (3) attempting to convert all of our remaining assets into cash or cash equivalents in an orderly fashion; (4) paying or adequately providing for payment of all our known obligations and liabilities; 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 is subject to settlement of outstanding litigation and the payment of liabilities. During this period, we will not operate our business as a going concern. Our Plan of Dissolution provides us with authority to sell any and all of our assets without further approval by our shareholders and provides that liquidating distributions be made to our shareholders as determined by our Board of Directors.

As a result of the shareholders’ approval of the 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 and settlement value of liabilities 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.

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 may 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 January 31, 2008, we estimate that the remaining amount of additional future liquidating distributions will range from $0.25 to $1.30 per common share. The actual amount available for distribution, if any, could be less than $0.25 if we discover additional liabilities or claims or incur unexpected or greater than

 

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expected expenses, or more than $1.30 if we are able to resolve our liabilities for less than our reserves. 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, subject to contingencies inherent in winding up our business, to make such distributions as promptly as practicable and periodically as we pay our remaining liabilities and obligations subject to law.

Segment Information

In connection with the adoption of the Plan of Dissolution, effective September 3, 2005 and subsequent periods the Company did not generate revenues from sale of products and have ceased all sales and marketing efforts related to the sales of our products and have no supply of product available for sale, and, therefore, the Company no longer has customers or related concentration of risk. The remaining entity reports in one segment and accordingly does not report segment information.

Fiscal 2008 Developments

Distributions: On December 14, 2007, we announced that our Board of Directors approved a cash liquidating distribution of $0.75 per share to shareholders of record on December 14, 2007. On December 21, 2007, a cash liquidating distribution was made to all shareholders of record as of the close of business on December 14, 2007 at a rate of $0.75 per share, totaling $22.5 million.

Sublease: Effective December 11, 2007, we entered into a sublease agreement with ZO Skin Health, Inc. for a base lease value of approximately $0.6 million for approximately 5,500 square feet of space at our former headquarters facility at 3790 Via de la Valle, Suite 311, Del Mar, California, expiring in September 2011. With this sublease, we have fully sublet the available space in our former headquarters facility.

Powerwave Closing Balance Sheet Arbitration: During the first quarter of fiscal 2008, after attempts to resolve this dispute informally had failed, REMEC and Powerwave engaged an independent accounting firm (the “Firm”) to render a final determination of the Net Asset Value at Closing, and the amount either party was required to pay to the other as a result thereof. On August 24, 2007, subsequent to REMEC’s third quarter-end, the Firm determined the Net Asset Value at Closing, and determined that Powerwave was required to pay REMEC $3.0 million. We received this amount on August 28, 2007. See Item 3, “Legal Proceedings” for current claims and litigation.

Cardinal Litigation: On November 16, 2004, a civil complaint was filed in San Diego Superior Court by Cardinal Health 301, Inc. (“Cardinal”) against Tyco Electronics Corporation (“Tyco”), Thomas & Betts Corporation (“T&B”) and the Company alleging breach of contract and breach of express and implied warranties. REMEC denied liability and filed cross-complaints against Tyco and T&B. Tyco and T&B in turn filed cross-complaints against REMEC. On August 8, 2006, the Court entered judgment in favor of REMEC against Cardinal, and awarded REMEC its costs of suit of approximately $80,000.00. Cardinal filed a Notice of Appeal as to REMEC’s judgment on October 31, 2006, and as to the cost award on December 22, 2006. On April 30, 2007, the Court of Appeal dismissed Cardinal’s appeal as to REMEC’s judgment, which dismissal was upheld by the California Supreme Court on July 25, 2007. Cardinal’s appeal from REMEC’s cost award remains pending. On December 13, 2007, REMEC and Tyco entered into a Settlement Agreement and Mutual Release, pursuant to which both parties agreed to dismiss their respective cross-complaints against each other with prejudice, and to release each other from all claims in the Cardinal Litigation. After this settlement, the Company has no liability to Cardinal or Tyco. Any remaining potential liability in this litigation to T&B is considered immaterial at this time. See Item 3, “Legal Proceedings” for current claims and litigation.

Employees

As of January 31, 2008, we had two full-time employees, who were our Executive Officers. We consider our relationships with our existing employees to be good.

Executive Officers

See Part III, Item 10.

Contract Personnel

From time to time, we utilize contract personnel to assist us in implementing our Plan of Dissolution.

 

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Item 1A.

Risk Factors.

Risks Associated with Our Liquidation and Dissolution

In addition to other information in this annual report on Form 10-K, 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-K, and the risks discussed in our other filings with the Securities and Exchange Commission, actual results could differ materially from those projected in any forward-looking statements.

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 result in less than anticipated or no remaining capital 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 which may be filed against us, these existing or potential litigation matters 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 less than or more 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 (Nasdaq) 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, if any, 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. 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 up 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 to resolve our outstanding and any new litigation will reduce the amount of remaining capital available for future distribution to shareholders. The Company is vigorously defending against these matters, the outcome of which is not presently determinable. The ultimate settlement, if any, may vary significantly from amounts presently accrued. Any unfavorable settlement could materially

 

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affect our financial position and net assets in liquidation. 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 former customers may file for breach of contract and breach of express and implied warranties with regard to products sold by the Company.

Our products consisted 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. These claims may result in additional liability to the Company, to the extent such liability was not assumed by the purchasers of our former business units.

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 up our operations and implement our Plan of Dissolution. 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. These expenses and claims will 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 January 31, 2008, 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.

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.

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 or resolved. 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 diminish the amount available for such distribution to our shareholders.

 

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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.

Our Board of Directors may determine to 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 determine at any time that it is in the best interests of the Company and its shareholders to 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.

 

Item 1B.

Unresolved Staff Comments.

None.

 

Item 2.

Properties.

Our principal executive offices are located at 3790 Via de la Valle, Suite 211, Del Mar, California 92014. We occupy approximately 884 square feet, under a lease that expires in September 2011. Effective December 11, 2007 we entered into a sublease agreement with ZO Skin Health, Inc. for approximately 5,500 square feet of space at our former headquarters facility at 3790 Via de la Valle, Suite 311, Del Mar, California, expiring in September 2011. With this sublease, our former headquarters facility is fully subleased.

Our only remaining lease, other than as described above is the facility at 13950 Stowe Drive, Poway, California, which is fully subleased through the remainder of the lease term.

The minimum future lease payments under non-cancelable operating lease payments as of January 31, 2008 are approximately $3.1 million, which is expected to be reduced by sublease payments totaling approximately $2.9 million.

 

Item 3.

Legal Proceedings.

The Company’s commitments and contingencies include the following claims and litigation. The Company is vigorously defending and prosecuting these matters, the outcome of which is not presently determinable. The ultimate result may vary significantly from the amounts we have presently accrued. Any unfavorable result could materially affect our financial position and net assets in liquidation.

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 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 in violation 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.

 

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After several consolidated and amended complaints were filed, challenged by the Company and dismissed by the Court with leave to amend, the Court denied REMEC’s Motion to Dismiss the Fourth Amended Complaint 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. Discovery has commenced and is ongoing. The Court granted Plaintiff’s motion for class certification on November 21, 2007. Trial has been set for March 2009. 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.

Retiree Medical Claim Arbitration

On October 7, 2005, the Company informed certain retired former officers of the Company that pursuant to the adoption of the Plan of Dissolution by the Company’s shareholders, the Company’s health care benefits for all employees and retirees would cease as of December 31, 2005. On May 11, 2006, the Company received written notice from each of two retired former officers, asserting claims for lifetime medical benefits for these former officers, their spouses and minor children, from the Company. The total of both claims exceeds $11.0 million. The Company has denied these claims in total. On or about November 13, 2006, the Company and each of the former officers agreed to a private binding arbitration to resolve this dispute. A former spouse of one of the claimants has joined the arbitration in order to assert an individual claim for lifetime medical care, which the Company has denied. Due to the wildfires in San Diego County the week of October 22, 2007, the arbitration hearing that was set for October 22-25, 2007, was postponed to April 21, 2008.

Powerwave Indemnity Claims

On May 17, 2006, in connection with the Asset Purchase Agreement dated March 13, 2005, and amended on July 11, 2005 by and between 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 a copy of a certificate, submitted by Powerwave to the Escrow Agent on May 12, 2006, certifying indemnification claims by Powerwave against REMEC potentially in excess of the escrow funds ($15.0 million), together with instructions not to release the escrow funds on the release date of June 2, 2006. On May 17, 2007 REMEC filed a Complaint for Declaratory Relief against Powerwave in Orange County Superior Court, seeking a judicial declaration that REMEC owes Powerwave nothing and ordering a disbursement of all escrow funds to REMEC. On or about June 20, 2007, Powerwave answered REMEC’s Complaint, and filed a Cross Complaint for Breach of Contract and Declaratory Relief, seeking damages in excess of the $5.0 million accrued at January 31, 2008. On December 12, 2007, the case was transferred to the Complex Civil Division of the Orange County Superior Court. Discovery has commenced and is ongoing.

Other

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. 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.

 

Item 4.

Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders during the quarter ended January 31, 2008.

 

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PART II

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock was previously traded on the Nasdaq National Market (Nasdaq) beginning on February 1, 1996 under the symbol “REMC.” On October 10, 2005, we provided a delisting notice to Nasdaq and voluntarily requested that our common stock be de-listed from Nasdaq as of October 13, 2005, the last trading day being October 12, 2005. Since we were de-listed from NASDAQ, October 13, 2005, our shares have continued to trade on the National Association of Securities Dealers (NASD) Over-the-Counter Bulletin Board (OTCBB) exchange under the symbol “REMC.OB”. The Over-the-Counter quotations reflect inter-dealer bid prices, without retail mark-up, markdown or commission and may not represent actual transactions.

On April 11, 2008, the number of shareholders of record of REMEC common stock was 494 and the closing sale price of REMEC common stock was $0.98 per share. The following table sets forth the range of high and low closing sale prices of our common stock as reported on Nasdaq and the NASD OTCBB for the quarterly periods indicated.

 

		High			Low
Fiscal 2007
First Quarter		$	1.36		$	1.29
Second Quarter			1.38			1.08
Third Quarter			1.89			1.08
Fourth Quarter			1.90			1.09
Fiscal 2008
First Quarter		$	1.55		$	1.46
Second Quarter			1.57			1.47
Third Quarter			1.74			1.45
Fourth Quarter			1.74			0.97
Fiscal 2009
First Quarter (through April 11, 2008)		$	1.01		$	0.95

Dividends

During the second quarter of fiscal 2006, the Company completed the reclassification of its common stock to allow for the distribution of proceeds from the sale of REMEC Defense & Space group. Pursuant to the reclassification, which was approved by the shareholders on May 18, 2005, effective May 20, 2005, each share of its existing 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. As a result of the reclassification and redemption, each holder of one share of REMEC’s existing common stock at the close of trading on the Nasdaq National Market on May 20, 2005 received 0.446 of a new share of common stock plus $2.80 in cash for the redemption share. The reclassification and redemption resulted in a substantial decrease in the number of outstanding shares and thus is reflected retroactively in our per share calculations for all periods presented.

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 $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 $22.5 million.

 

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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 $22.5 million.

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.

Recent Sales of Unregistered Securities

Since February 1, 2007, we have not issued any securities that have not been registered under the Securities Act of 1933, as amended.

Purchases of Equity Securities

We did not repurchase any shares of our equity securities during fiscal year 2008.

 

Item 6.

Selected Financial Data.

The following selected consolidated financial data (in thousands, except per share data) should be read in conjunction with the consolidated financial statements and the notes to the consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this report. Our historical results are not necessarily indicative of results for any future periods.

On July 21, 2005, our Board of Directors approved the liquidation and dissolution of REMEC, Inc. 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. The holders of a majority of our outstanding shares approved the Plan of Dissolution at our August 31, 2005 special shareholder meeting, effective on September 3, 2005. The Company completed the sale of its Wireless Systems business unit on September 2, 2005, which was the last operating business unit of the Company. Effective September 3, 2005, REMEC adopted the liquidation basis of accounting. In connection with the adoption of the Plan of Dissolution, we will not generate revenues from sales of our products in the future. We have ceased all sales and marketing efforts related to the sales of our products and have no supply of product available for sale, and, therefore, will not incur cost of revenues in the future.

The information on changes to our net assets since our adoption of the liquidation basis of accounting effective September 3, 2005 is presented in the table below in a format consistent with our consolidated financial statements under Part II, Item 8 of this annual report on Form 10-K. The following tables present summarized consolidated financial information including net assets in liquidation, changes in net assets in liquidation, balance sheet information, operating results, and cash flows on the liquidation and going concern basis for the respective periods. (In thousands, except per share data):

 

		Liquidation Basis
		Fiscal Years Ended January 31,
		2008				2007				2006
Statements of Net Assets:
Total assets		$	55,935			$	75,240			$	115,977
Total liabilities			(17,440	)			(20,683	)			(68,362	)
Net assets in liquidation			38,495				54,557				47,615
Number of common shares outstanding			30,031				30,031				29,062
Net asset value per share		$	1.28			$	1.82			$	1.64

 

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		Liquidation Basis
		Fiscal Years Ended January 31,								For the period September 3, 2005 through January 31, 2006
		2008				2007
Statements of Changes in Net Assets:
Net assets in liquidation, beginning of period		$	54,557			$	47,615			$	212,778
Liquidation basis adjustments			6,461				29,461				(19,499	)
Distributions to shareholders			(22,523	)			(22,519	)			(145,664	)
Net increase (decrease) in net assets in liquidation			(16,062	)			6,942				(165,163	)
Net assets in liquidation, end of period		$	38,495			$	54,557			$	47,615
		Going Concern Basis
		For the period February 1, 2005 through September 2, 2005				Fiscal Years Ended January 31,
						2005				2004
Statements of Operations Data:
Income (loss) from discontinued operations including gain/(loss) on disposal, net of tax (Note 3)		$	221,391	(**)		$	(90,781	)		$	(49,408	)
Net income (loss)		$	221,391			$	(90,781	)		$	(49,408	)
Per Share Data:
Net income (loss) from discontinued operations – Basic		$	7.88			$	(3.28	)		$	(1.87	)
Net income (loss) from discontinued operations – Diluted		$	7.44			$	(3.28	)		$	(1.87	)
Shares used in per share calculations: (*)
Basic			28,084				27,683				26,373
Diluted			29,775				27,683				26,373

 

(*)	Reflects the effect of a share reclassification in which each existing share of common stock was converted into 0.446 of a share of common stock on May 20, 2005. See Item 5. “Dividends”

(**)	See Item 8, Note 3. “Discontinued Operations”

 

		Going Concern Basis
		Fiscal Years Ended January 31,
		2005			2004
Balance Sheet Data:
Cash, cash equivalents and short term-investments		$	36,770		$	54,924
Working capital			76,855			110,215
Total assets			274,923			363,207
Long-term debt			—			1,160
Total shareholders’ equity			164,505			253,274

 

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Item 7.

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

The following discussion should be read in conjunction with Item 6, “Selected Financial Data,” and our historical consolidated 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, and the Company will continue in existence until its final dissolution, which is subject to settlement 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.

 

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Liquidation Basis of Accounting and Plan of Dissolution

The accompanying condensed consolidated 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 $16.1 million, or $0.54 per share, to $38.5 million for the fiscal year ended January 31, 2008 from $54.6 million for the year ended January 31, 2007. (In thousands, except per share data):

 

		Fiscal Years Ended January 31,
		2008			2007
Net assets in liquidation		$	38,495		$	54,557
Number of common shares outstanding at each respective date			30,031			30,031
Net asset value per outstanding share		$	1.28		$	1.82

The following paragraph summarizes certain material actions and events which have occurred regarding the Company’s liquidation process during the year ended January 31, 2008.

The primary reason for the decrease in net assets in liquidation for the twelve months ending January 31, 2008, was the result of the liquidating cash distribution paid to our shareholders on December 21, 2007 of approximately $22.5 million, or $0.75 per share (see Item 5, “Dividends”) and the change in reserve for litigation and related settlement costs of approximately $1.3 million.

The Company increased its reserve for income taxes, net, approximately $1.7 million which decreased net assets in liquidation for the twelve months ending January 31, 2008. 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, “Income Taxes”) and deferred interest income on our restricted cash held in escrow related to the sale of our Wireless Systems business sold to Powerwave Technologies, Inc., (“Powerwave”) to satisfy potential indemnifications obligations (see Item 3, “Legal Proceedings.”) Other changes in net assets in liquidation for the twelve months include $0.7 million, in the change of the reserve for notes receivables as a result of a settlement agreement on the collection of a note.

Decreases in net assets for the twelve months ending January 31, 2008 are off-set by a tax refund related to our 2006 Federal income tax return in the amount of $3.6 million and the award of $3.0 million in the second quarter of fiscal 2008 to the Company in the closing balance sheet arbitration with Powerwave, and approximately $1.5 million from the reduction in reserves related to estimated purchase price adjustments in the closing balance sheet arbitration with Powerwave and other final post closing balance sheet adjustments from the sale of the Company’s business units in fiscal 2006.

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