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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

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Form 10-Q

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

For the quarterly period ended August 2, 2002

Commission File Number 0-27414

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REMEC, INC.(Exact name of registrant as specified in its charter)

CALIFORNIA(State of other jurisdiction of
Incorporation or organization)

95-3814301I.R.S. Employer Identification Number3790 VIA DE LA VALLE
DEL MAR, CALIFORNIA(Address of principal executive offices)

92014(Zip Code)


(858) 505-3713(Registrant's telephone number, including area code)

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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 month (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 ý    NO o

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

Class

Outstanding as of: August 2, 2002Common shares, $.01 par value

45,486,772


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REMEC, Inc.
Form 10-Q
For The Quarterly and Six Month Periods Ended August 2, 2002

|Index          |  |                                                                                       |  | Page No.
|-------------- |  | ------------------------------------------------------------------------------------- |  | --------
|PART I         |  | FINANCIAL INFORMATION                                                                 |  |         
|Item 1.        |  | Condensed Consolidated Unaudited Financial Statements:                                |  |         
|               |  | Condensed Consolidated Balance Sheets                                                 |  | 3       
|               |  | Condensed Consolidated Statements of Operations                                       |  | 4       
|               |  | Condensed Consolidated Statements of Cash Flows                                       |  | 5       
|               |  | Notes to Condensed Consolidated Financial Statements                                  |  | 6       
|Item 2.        |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 12      
|Item 3.        |  | Qualitative and Quantitative Disclosures About Market Risk                            |  | 17      
|PART II        |  | OTHER INFORMATION                                                                     |  |         
|Item 4.        |  | Submission of Matters to a vote of Security Holders                                   |  | 18      
|Item 6.        |  | Exhibits and Reports on Form 8-K                                                      |  | 18      
|SIGNATURES     |  | 19                                                                                   
|CERTIFICATIONS |  | 20                                                                                   
|EXHIBITS       |  |                                                                                      
|Exhibit 10.1   |  |                                                                                      
|Exhibit 99.1   |  |                                                                                      

2

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PART IFINANCIAL INFORMATION

Item 1

REMEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                                      |                                                | August 2, 2002 |         | January 31, 2002
|----------------------------------------------------- | ---------------------------------------------- | -------------- | ------- | ----------------
|
|ASSETS                                                |                                                |                |         |                 
|Current assets:                                       |                                                |                |         |                 
|                                                      | Cash and cash equivalents                      |                | $       | 34,530          
|                                                      | Accounts receivable, net                       |                |         | 40,099          
|                                                      | Inventories, net                               |                |         | 43,866          
|                                                      | Deferred income taxes                          |                |         | 24,879          
|                                                      | Other current assets                           |                |         | 8,073           
|                                                      |                                                |                |         |                 
|Total current assets                                  |                                                |                | 151,447 |                 
|                                                      | Property, plant and equipment, net             |                |         | 90,128          
|                                                      | Restricted cash                                |                |         | 17,049          
|                                                      | Goodwill, net                                  |                |         | 36,407          
|Intangibles and other assets, net                     |                                                |                | 11,335  |                 
|                                                      |                                                |                |         |                 
|                                                      |                                                | $              | 306,366 |                 
|                                                      |                                                |                |         |                 
|LIABILITIES AND SHAREHOLDERS' EQUITY                  |                                                |                |         |                 
|Current liabilities:                                  |                                                |                |         |                 
|                                                      | Accounts payable                               |                | $       | 15,646          
|                                                      | Accrued expenses and other current liabilities |                |         | 19,782          
|                                                      |                                                |                |         |                 
|Total current liabilities                             |                                                |                | 35,428  |                 
|Deferred income taxes and other long-term liabilities |                                                |                | 6,405   |                 
|Shareholders' equity                                  |                                                |                | 264,533 |                 
|                                                      |                                                |                |         |                 
|                                                      |                                                | $              | 306,366 |                 
|                                                      |                                                |                |         |                 

See accompanying notes.

3

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REMEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)

|                                                    |  | Three months ended |         | Six months ended |  
|--------------------------------------------------- |  | ------------------ | ------- | ---------------- | -
|
|Net sales                                           |  | $                  | 53,488  |                  | $
|Cost of sales                                       |  |                    | 49,470  |                  |  
|                                                    |  |                    |         |                  |  
|Gross profit                                        |  |                    | 4,018   |                  |  
|Operating expenses:                                 |  |                    |         |                  |  
|Selling, general and administrative                 |  |                    | 11,583  |                  |  
|Research and development                            |  |                    | 7,783   |                  |  
|                                                    |  |                    |         |                  |  
|Total operating expenses                            |  |                    | 19,366  |                  |  
|                                                    |  |                    |         |                  |  
|Loss from operations                                |  |                    | (15,348 | )                |  
|Write-down of investment                            |  |                    |        |                  |  
|Gain on sale of subsidiary                          |  |                    |        |                  |  
|Interest income and other, net                      |  |                    | 650     |                  |  
|                                                    |  |                    |         |                  |  
|Loss before income taxes                            |  |                    | (14,698 | )                |  
|Credit for income taxes                             |  |                    | (3,823  | )                |  
|                                                    |  |                    |         |                  |  
|Net loss                                            |  | $                  | (10,875 | )                | $
|                                                    |  |                    |         |                  |  
|Net loss per common share:                          |  |                    |         |                  |  
|Basic                                               |  | $                  | (0.24   | )                | $
|                                                    |  |                    |         |                  |  
|Diluted                                             |  | $                  | (0.24   | )                | $
|                                                    |  |                    |         |                  |  
|Shares used in computing net loss per common share: |  |                    |         |                  |  
|Basic                                               |  |                    | 45,320  |                  |  
|                                                    |  |                    |         |                  |  
|Diluted                                             |  |                    | 45,320  |                  |  
|                                                    |  |                    |         |                  |  

See accompanying notes.

4

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REMEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

|                                                                            |                                                                         | Six months ended |        
|--------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ---------------- | -------
|
|OPERATING ACTIVITIES                                                        |                                                                         |                  |        
|Net income loss                                                             |                                                                         | $                | (16,039
|Adjustments to reconcile net loss to net cash used by operating activities: |                                                                         |                  |        
|Depreciation and amortization                                               |                                                                         |                  | 10,191 
|Write-down of investment                                                    |                                                                         |                  |       
|Gain on sale of subsidiary                                                  |                                                                         |                  |       
|Changes in operating assets and liabilities:                                |                                                                         |                  |        
|                                                                            | Accounts receivable                                                     |                  |        
|                                                                            | Inventories                                                             |                  |        
|                                                                            | Other current assets                                                    |                  |        
|                                                                            | Accounts payable                                                        |                  |        
|                                                                            | Accrued expenses, deferred income taxes and other long-term liabilities |                  |        
|                                                                            |                                                                         |                  |        
|Net cash used by operating activities                                       |                                                                         |                  | (11,428
|INVESTING ACTIVITIES                                                        |                                                                         |                  |        
|Additions to property, plant and equipment                                  |                                                                         |                  | (7,920 
|Payment for acquisitions, net of cash acquired                              |                                                                         |                  |       
|Proceeds from sale of subsidiary                                            |                                                                         |                  |       
|Proceeds from sale of property                                              |                                                                         |                  | 2,600  
|Other assets                                                                |                                                                         |                  | (1,532 
|                                                                            |                                                                         |                  |        
|Net cash used by investing activities                                       |                                                                         |                  | (6,852 
|FINANCING ACTIVITIES                                                        |                                                                         |                  |        
|Debt repayments                                                             |                                                                         |                  |       
|Proceeds from sale of common stock                                          |                                                                         |                  | 1,356  
|                                                                            |                                                                         |                  |        
|Net cash used by financing activities                                       |                                                                         |                  | 1,356  
|Effect of exchange rate changes on cash                                     |                                                                         |                  | 2,016  
|                                                                            |                                                                         |                  |        
|Decrease in cash and cash equivalents                                       |                                                                         |                  | (14,908
|Cash and cash equivalents at beginning of period                            |                                                                         |                  | 49,438 
|                                                                            |                                                                         |                  |        
|Cash and cash equivalents at end of period                                  |                                                                         | $                | 34,530 
|                                                                            |                                                                         |                  |        

See accompanying notes.

5

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

1. Quarterly Financial Statements

The interim condensed consolidated financial statements included herein have been prepared by REMEC, Inc. (the "Company" or "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; nevertheless, the management of REMEC believes that the disclosures herein are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended January 31, 2002,
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
only of normal recurring adjustments, necessary to present fairly the consolidated financial position of REMEC as of August 2, 2002, and the results of its operations for the three and six
month periods ended August 2, 2002 and July 27, 2001. The results of operations for the interim periods ended August 2, 2002, are not necessarily indicative of the results, which
may be reported for any other interim period or for the entire fiscal year.

The
statements in this report on Form 10-Q that relate to future plans, events or performance are forward-looking statements. Actual results could differ materially
due to a variety of factors, including REMEC's success in penetrating the commercial wireless market, risks associated with the cancellation or reduction of orders by significant commercial or defense
customers, trends in the commercial wireless and defense markets, risks of cost overruns and product nonperformance and other risk factors and considerations described in REMEC's Annual Report on
Form 10-K, and the other documents REMEC files from time to time with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. REMEC undertakes no obligation to publicly release the result of any revisions to these forward-looking statements, other than as required by applicable law that may be
made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

2. Earnings Per Share

REMEC calculates earnings per share in accordance with SFAS No. 128, "Earnings per Share." Basic earnings per share is computed using the weighted average
shares outstanding for each period presented. Diluted earnings per share is 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 may include options, warrants, and preferred stock as if converted and restricted stock subject to vesting. Potentially dilutive securities (consisting of stock
options) totaling 107 and 653 shares for the three and six months months ended August 2, 2002, and 214 and 617 shares for the three and six months ended July 27, 2001, respectively, were
excluded from the calculation of diluted earnings per share because of their anti-dilutive effect.

6

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3. Inventories

Inventories consist of the following (in thousands):

August 2, 2002

January 31, 2002Raw materials

$
33,603

$
30,068Work in progress


10,263


14,246$
43,866

$
44,314


Inventories
related to contracts with prime contractors to the U.S. Government included capitalized general and administrative expenses of $900 and $1,067 at August 2, 2002, and
January 31, 2002, respectively. REMEC had a reserve for obsolete and unusable inventory of $22,661 and $23,221 as of August 2, 2002, and January 31, 2002, respectively.

4. Comprehensive Income (Loss)

Comprehensive income 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, including foreign currency translation adjustments and unrealized gains and losses on investments, are reported, net of their related tax effect, to
arrive at comprehensive income (loss).

The
components of comprehensive loss, net of tax, are as follows (in thousands):

|                                            |  | Three months ended |         | Six months ended |  
|------------------------------------------- |  | ------------------ | ------- | ---------------- | -
|
|Net loss                                    |  | $                  | (10,875 | )                | $
|Change in net unrealized loss on investment |  |                    | (2,050  | )                |  
|Foreign currency translation adjustment     |  |                    | 1,329   |                  |  
|                                            |  |                    |         |                  |  
|Comprehensive loss                          |  | $                  | (11,596 | )                | $
|                                            |  |                    |         |                  |  

5. Acquisition Transactions



On October 26, 2001, REMEC acquired Solitra in Oulu, Finland from ADC Telecommunications, Inc. The Company acquired the assets and assumed all of
the obligations of Solitra's radio frequency (RF) division and 100% of the shares of Solitra in exchange for cash consideration of $50.1 million. The acquisition has been accounted for as a
purchase, and accordingly, the total purchase price has been allocated to the acquired assets and liabilities assumed at their estimated fair values in accordance with the provisions of
SFAS 141. The estimated excess of the purchase price over the net tangible assets acquired of approximately $28.2 million is being carried as intangible assets, including goodwill of
$24.8 million. REMEC's consolidated financial statements include the results of Solitra from the date of acquisition.



On March 7, 2001, REMEC acquired substantially all of the assets and assumed all of the obligations of PMC, a privately held microwave electronics
manufacturing company located in the Philippines, in exchange for cash consideration of approximately $23.1 million. The acquisition has been accounted for as a purchase, and accordingly, the
total purchase price has been allocated to the acquired assets and liabilities assumed at their estimated fair values. REMEC's consolidated financial statements include the results of PMC from the
date of acquisition.

7

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On February 26, 2001, REMEC sold substantially all of the operating assets and operations of its wholly owned subsidiary Humphrey, Inc. in exchange
for cash consideration of $13.8 million. The sale of Humphrey resulted in a gain of $7.6 million, in the fiscal 2002.



The following unaudited pro forma summary presents the consolidated results of operations of the Company assuming that the acquisition of Solitra had occurred on
the first day of REMEC's fiscal year ended January 31, 2002. The pro forma condensed consolidated results of operations would be as follows (in thousands, except per share data):

Six Months EndedAugust 2, 2002

July 27, 2001Net sales

$
112,551

$
135,068Net loss

$
(16,039
)
$
(13,254
)Net loss per share:Basic

$
(0.35
)
$
(0.30
)Diluted

$
(0.35
)
$
(0.30
)


6. Information by Segment

Our business is divided into four groups: Broadband Wireless, Mobile Wireless, Defense and Space and Global Manufacturing. Not included in the above groups are
certain non-operating subsidiaries of REMEC and Nanowave, Inc., a majority owned subsidiary which designs and produces custom monolithic integrated circuits, critical modules and
integrated subassemblies for fiber optic and other wireless communications. The Company's reportable segments have been determined based on the nature of the products offered to customers or the
nature of their function within the organization. The Company evaluates performance and allocates resources based on profit or loss from operations before interest, other income and income taxes.

8

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Segment Data (in thousands):

|                               |                                            | Three months ended |        | Six months ended |  
|------------------------------ | ------------------------------------------ | ------------------ | ------ | ---------------- | -
|
|Sales:                         |                                            |                    |        |                  |  
|Broadband Wireless             |                                            | $                  | 9,814  |                  | $
|Mobile Wireless                |                                            |                    | 22,379 |                  |  
|Defense and Space              |                                            |                    | 17,779 |                  |  
|Global Manufacturing           |                                            |                    | 9,651  |                  |  
|All other                      |                                            |                    | 2,066  |                  |  
|Intersegment revenues          |                                            |                    | (8,201 | )                |  
|                               |                                            |                    |        |                  |  
|                               | Consolidated net sales                     |                    | $      | 53,488           |  
|                               |                                            |                    |        |                  |  
|Income (loss) from operations: |                                            |                    |        |                  |  
|Broadband Wireless             |                                            | $                  | (4,832 | )                | $
|Mobile Wireless                |                                            |                    | (9,483 | )                |  
|Defense and Space              |                                            |                    | 2,347  |                  |  
|Global Manufacturing           |                                            |                    | (211   | )                |  
|All other                      |                                            |                    | (3,169 | )                |  
|                               |                                            |                    |        |                  |  
|                               | Consolidated loss from operations          |                    | $      | (15,348          | )
|                               |                                            |                    |        |                  |  
|Depreciation and amortization: |                                            |                    |        |                  |  
|Broadband Wireless             |                                            | $                  | 377    |                  | $
|Mobile Wireless                |                                            |                    | 508    |                  |  
|Defense and Space              |                                            |                    | 836    |                  |  
|Global Manufacturing           |                                            |                    | 2,302  |                  |  
|All other                      |                                            |                    | 1,078  |                  |  
|                               |                                            |                    |        |                  |  
|                               | Consolidated depreciation and amortization |                    | $      | 5,101            |  
|                               |                                            |                    |        |                  |  

|                     |                                  | August 2, 2002 |         | January 31, 2002
|-------------------- | -------------------------------- | -------------- | ------- | ----------------
|Identifiable assets: |                                  |                |         |                 
|Broadband Wireless   |                                  | $              | 10,589  |                 
|Mobile Wireless      |                                  |                | 82,278  |                 
|Defense and Space    |                                  |                | 33,852  |                 
|Global Manufacturing |                                  |                | 76,359  |                 
|All other            |                                  |                | 103,288 |                 
|                     |                                  |                |         |                 
|                     | Consolidated identifiable assets |                | $       | 306,366         
|                     |                                  |                |         |                 

During
the current fiscal year, the Company transferred certain identifiable assets to its Global Manufacturing segment from its other commercial product groups as part of the Company's
reorganization efforts.

7. Restructuring

During the fourth quarter of fiscal 2002, the Company announced that it was undertaking various actions to restructure its operations to improve its overall
financial performance. The Company's restructuring plan included reductions in its overall cost structure, realignment of manufacturing capacity to current levels of demand and the transition of
manufacturing operations to low cost, low tax offshore locations. Part of the restructuring effort also included a reduction in force of approximately

9

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1,100 employees. As a result of this plan, restructuring related charges of approximately $17.3 million were recognized as operating expenses in fiscal 2002.

The
following table (in thousands) summarizes the balance of the accrued restructuring reserve, which has been included in accrued liabilities at August 2, 2002:

|                            |      | Write-Down of
Redundant/
Obsolete Assets |     | Severance
Costs for
Involuntary
Employee
Terminations |   | Costs to Exit
Certain Lease
Obligations |      | Other Costs
Related to
Consolidation of
Facilities |       | Total |  
|--------------------------- | ---- | ---------------------------------------- | --- | ----------------------------------------------------- | - | --------------------------------------- | ---- | -------------------------------------------------- | ----- | ----- | -
|Balance at January 31, 2002 |      | $                                        | 523 |                                                       | $ | 707                                     |      | $                                                  | 2,208 |       | $
|Utilization of Reserves:    |      |                                          |     |                                                       |   |                                         |      |                                                    |       |       |  
|                            | Cash |                                          |     |                                                      |   |                                         | (324 | )                                                  |       | (684  | )
|                            |      |                                          |     |                                                       |   |                                         |      |                                                    |       |       |  
|Balance at August 2, 2002   |      | $                                        | 523 |                                                       | $ | 383                                     |      | $                                                  | 1,524 |       | $
|                            |      |                                          |     |                                                       |   |                                         |      |                                                    |       |       |  

In
the second half of the current fiscal year, the Company expects to complete the disposal of redundant assets, the facility consolidation and the remaining workforce reductions. As of
August 2, 2002, the company continues to believe that its estimates of accrued restructuring costs remain appropriate and adequate to complete these efforts.

8. Goodwill and Other Intangible AssetsAdoption of Statement 142

In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No.141,Business
Combinations, and No. 142,Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase method of
accounting be used for all business combinations closed after June 30, 2001. SFAS 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible
assets arising from business combinations completed after June 30, 2001. SFAS 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives.
SFAS 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives.
Additionally, SFAS 142 requires that goodwill included in the carrying value of equity method investments no longer be amortized.

The
Company has implemented SFAS 141 and SFAS 142 and began applying the new rules on accounting for goodwill and other intangible assets effective February 1, 2002.
The net book value assigned to our assembled workforce intangible asset at August 2, 2002, which totaled approximately $500 has been reclassed and reported as goodwill and will no longer be
amortized effective February 1, 2002.

The
following table presents reconciliation's of net loss and per share data to what would have been reported had the new rules been in effect for the three and six months ended
July 27, 2001. (in thousands, except per share data):

|                                            |  | Three Months Ended |         | Six Months Ended |  
|------------------------------------------- |  | ------------------ | ------- | ---------------- | -
|
|Net loss as reported                        |  | $                  | (10,875 | )                | $
|Add back goodwill amortization, net of tax  |  |                    |        |                  |  
|                                            |  |                    |         |                  |  
|Adjusted net loss                           |  | $                  | (10,875 | )                | $
|                                            |  |                    |         |                  |  
|Basic and diluted net loss per share:       |  |                    |         |                  |  
|Reported net loss per share                 |  | $                  | (0.24   | )                | $
|Goodwill amortization per share, net of tax |  |                    |        |                  |  
|                                            |  |                    |         |                  |  
|Adjusted net loss per share                 |  | $                  | (0.24   | )                | $
|                                            |  |                    |         |                  |  

10

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Acquired intangible assets subject to amortization at August 2, 2002 were as follows (in thousands):

Gross Carrying
Value

Accumulated
Amortization

Net Carrying
ValueCore technology

$
14,674

$
7,972

$
6,702Trademark and trade name


1,443


748


695$
16,117

$
8,720

$
7,397


Amortization
expense for intangible assets was $347 and $695 for the three months and six months ended August 2, 2002, respectively, and $270 and $540 for the three and six months
ended July 27, 2001, respectively.

9. Newly Issued Accounting Standards

In July 2002, FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities." The statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 requires that a liability for costs associated with an exit or disposal activity be recognized when a
liability is incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entity's commitment to an exit plan.
The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, however, earlier adoption is permissible. We do not intend to early
adopt SFAS 146.

10. Income Taxes

The credit for income taxes recorded reflects the recognition of the tax benefit associated with REMEC's net operating losses. The Company has continued to record
tax benefit for these operating losses on the basis of its forecast which assumes attaining revenue levels and related margins, continuing with cost cutting measures and implementing tax planning
strategies all of which, will ensure
the realization of the recorded tax benefits. If the Company is unable to achieve its forecasted operating results and complete its tax planning efforts, the Company will be unable to take tax benefit
for future operating losses and depending on the short-fall, may have to reduce the carrying value of its deferred tax assets.

11. Pending Business Combination

On May 19, 2002, REMEC and Spectrian Corporation, a publicly held company, designer and manufacturer of single carrier and multi-carrier
high-power RF amplifiers, announced that the two companies had entered into a definitive merger agreement through with REMEC will acquire Spectrian for approximately $160 million in
stock and cash. This transaction is subject to the REMEC and Spectrian shareholders' approval, as well as customary closing conditions and regulatory approvals. Spectrian is located in Sunnyvale,
California. As of August 2, 2002, the Company has deferred approximately $0.9 million of costs incurred in connection with this transaction. Such costs have been included in the balance
sheet as other assets, and would have to be written off to other expense in the event the transaction is not completed.

12. Legal Proceedings

Neither REMEC nor any of its subsidiaries is presently subject to any material litigation, nor to REMEC's knowledge, is such 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 business or financial condition of REMEC.

11

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Item 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Our business is divided into four groups: Broadband Wireless, Mobile Wireless, Defense and Space and Global Manufacturing. The Broadband Wireless group develops
and manufactures microwave products for fixed access wireless communications infrastructure equipment integrated into wireless networks for high speed voice, video, data and internet services. The
Mobile Wireless group develops and manufactures integrated RF products that improve the performance and cost effectiveness of mobile wireless communications infrastructure equipment. The Defense and
Space group provides a broad spectrum of RF, microwave and guidance products for systems integrated by prime contractors in military and space applications. The Global Manufacturing group provides
high volume production of microwave products, including test and critical hybrid circuits, to our product groups as well as providing contract manufacturing services to third party customers. Not
included in the above groups are certain non-operating subsidiaries of REMEC and Nanowave, Inc., a majority owned subsidiary which designs and produces custom monolithic integrated
circuits, critical modules and integrated subassemblies for fiber optic and other wireless communication systems.

Results of Operations as a Percentage of Net Sales

The following table sets forth, as a percentage of total net sales, certain consolidated statement of income data for the periods indicated.

|                               |                                   | Three months ended       |      | Six months ended |     
|------------------------------ | --------------------------------- | ------------------------ | ---- | ---------------- | ----
|
|Net sales                      |                                   | 100.0                    | %    | 100.0            | %   
|Cost of sales                  |                                   | 92.5                     |      | 89.0             |     
|                               |                                   |                          |      |                  |     
|                               | Gross profit                      |                          | 7.5  |                  | 11.0
|Operating expenses:            |                                   |                          |      |                  |     
|                               | Selling, general & administrative |                          | 21.6 |                  | 20.7
|                               | Research and development          |                          | 14.6 |                  | 10.8
|                               |                                   |                          |      |                  |     
|                               |                                   | Total operating expenses |      | 36.2             |     
|                               |                                   |                          |      |                  |     
|Loss from operations           |                                   | (28.7                    | )    | (20.5            | )   
|Write-down of investment       |                                   |                         |      |                 |     
|Gain on sale of subsidiary     |                                   |                         |      |                 |     
|Interest income and other, net |                                   | 1.2                      |      | 2.8              |     
|                               |                                   |                          |      |                  |     
|Loss before income taxes       |                                   | (27.5                    | )    | (17.7            | )   
|Credit for income taxes        |                                   | (7.2                     | )    | (7.3             | )   
|                               |                                   |                          |      |                  |     
|Net loss                       |                                   | (20.3                    | )%   | (10.4            | )%  
|                               |                                   |                          |      |                  |     

Results of Operations

Net Sales and Gross Profit.Net sales were $53.5 million and $112.6 million for the
three and six months ended August 2, 2002, respectively, representing decreases of $6.9 million (11.4%) and $6.8 million (5.7%), respectively, from the comparable prior year
periods. The decline in net sales reflects continued weak demand from telecommunications infrastructure customers. Gross profit was $4.0 million and $14.0 million for the three and six
months ended August 2, 2002, respectively, as

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compared to $6.7 million and $11.0 million for the comparable prior year periods. For the three months ended August 2, 2002, consolidated gross margin as a percentage of sales
decreased to 7.5% from 11.0% during the comparable prior year period principally as a result of the decline in sales volume and the additional fixed overhead costs arising from the production
operations of Solitra and REMEC China (which were both acquired in the fourth quarter of last year). On a year-to-date basis, gross margin as a percentage of sales increased to
12.4% from 9.3% in the prior year. Prior year results included reserves for excess inventory of approximately $9.9 million, which have only been $0.8 million in the current year.

Segment Information.The following segment information should be read in conjunction with the financial results of each
reporting segment as detailed in Note 6 of the Condensed Consolidated Financial Statements. The following segment sales figures exclude intersegment revenues totaling $8.2 million and
$16.3 million for the three and six months ended August 2, 2002, and $10.9 million and $26.6 million for the three and six months ended July 27, 2001, respectively.
Intersegment revenues resulted primarily from sales from the Global Manufacturing group. Results within each of our business segments were as follow:

Broadband Wireless ("BBW").Net sales were $8.5 million and $16.0 million for the three and six months ended
August 2, 2002, representing decreases of $6.3 million (42.6%) and $17.4 million (52.2%), respectively, from the comparable prior year periods. The decline in BBW sales reflects
the overall decline in industry demand for point-to-point radios and transceivers. For the three months ended August 2, 2002, gross margin as a percentage of sales
increased to 7.9% from 7.5% in the comparable prior year period. Prior year gross margins include inventory reserves of $2.9 million. The improvement in the current year is due to the absence
of these costs. On a year-to-date basis, gross margin decreased to 5.0% from 12.2% for the comparable prior year due to the decline in sales and the under absorbed costs
associated with excess manufacturing capacity.

Mobile Wireless.Net sales were $17.6 million and $36.6 million for the three and six months August 2,
2002, representing increases of $0.1 million (0.4%) and $2.9 million (8.6%), respectively, from the comparable prior year periods. The increase in net sales during these periods is
primarily due to additional filter product sales associated with the acquisition of Solitra in the fourth quarter of the prior year which offset declining masthead and amplifier sales. For the three
months ended August 2, 2002, gross margin as a percentage of net sales decreased to a negative 10.6% from a positive 6.8% in the comparable prior year period due primarily to competitive
pressures resulting in lower average selling prices coupled with increased manufacturing costs due to excess manufacturing capacity. On a year-to-date basis, gross margin
increased to a positive 3.3% from a negative 8.8% in the prior year. Results for the six months ended July 27, 2001 include reserves for excess inventories totaling approximately
$5.0 million. The improvement of gross margins in the current year is primarily due to the absence of these costs.

Defense and Space.Net sales were $17.8 million and $35.0 million for the three and six months ended
August 2, 2002, representing increases of $2.4 million (15.7%) and $4.4 million (14.3%), respectively, from the comparable prior year periods. Gross margin as a percentage of
sales increased to 27.4% and 25.0% for the three and six months ended August 2, 2002, respectively, from 21.9% for both of the comparable prior year periods. The increase in sales revenues is
mainly attributable to increased delivery rates based on customer contract requirements. The increase in gross margins as a percentage of net sales reflects the transitioning of several programs from
the development and low-rate production phase to the higher gross margin full-rate production phase and improved overhead absorption resulting from the overall increase in
production volumes.

Global Manufacturing.Net sales to external customers were $7.8 million and $20.8 million for the three and six
months ended August 2, 2002, representing a decrease of $2.6 million (25.2%) and an increase of $5.4 million (35.2%), respectively, over the prior year periods. The changes in
relative sales

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levels reflect fluctuating demand for consignment and turnkey manufacturing services from our largest manufacturing services customer. For the three months ended August 2, 2002, gross margin
as a percentage of net sales decreased to a negative 4.8% from 9.3 in the comparable prior year period as a result of the impact on overhead absorption of the decline in production volume. On a
year-to-date basis, however, gross margin increased to 10.9% from 10.5% in the prior year due to the overall increase in production volume.

Other Sales.Other sales, which are primarily generated at our majority owned Nanowave subsidiary, were $1.8 million
and $4.2 million for the three and six months ended August 2, 2002, representing decreases of $0.5 million (20.5%) and $2.0 million (32.8%), respectively, from the
comparable prior year periods. The sales decline is attributable to decreased demand for microwave modules for the fiber optic market. For the three and six months ended August 2, 2002, gross
margin as a percentage of net sales decreased to a negative 0.8% and a positive 9.8%, respectively, from 7.5% and 11.0% in the comparable prior year periods as a result of the impact on overhead
absorption of the decline in production volume.

Selling, General and Administrative Expenses.Selling, general and administrative expenses, or SG&A,
were $11.6 million and $21.1 million for the three and six months ended August 2, 2002, respectively, as compared to $12.5 million and $24.5 million during the
comparable prior year periods. The decrease in SG&A for the three months ended August 2, 2002, reflects the impact of the Company's cost savings initiatives and a $.6 million reduction
of goodwill amortization due to the implementation of FAS 142, which eliminates the requirement to amortize goodwill. The $3.4 million decrease in SG&A on a year to date basis is
primarily attributable to the reversal of approximately $1.7 of accrued employee compensation and professional fees accruals and a $1.2 million reduction of goodwill amortization due to the
accounting change discussed above.

Research and Development Expenses.Research and development expenses were $7.8 million and
$15.6 million for the three and six months ended August 2, 2002, respectively, as compared to $6.5 million and $12.7 million during the comparable prior year periods. As a
percentage of net sales, research and development expenses increased from 10.8% and 10.7% to 14.6% and 13.9% for the three and six months ended August 2, 2002, respectively. These expenditures
are almost entirely attributable to REMEC's Broadband Wireless and Mobile Wireless groups and reflect increased activity associated with new wireless communications product development initiatives
that the Company believes are required to meet current and future market and customer requirements.

Write-Down of Investment.Results of operations for the six months ended July 27,
2001 include a $9.4 million charge to operations representing the write-down of our investment in Allgon AB common stock, which had been acquired in conjunction with our proposed
merger with Allgon, to its market value. Subsequent increases and decreases have been recorded as unrealized gains and losses in other comprehensive income. There was no similar write-down
in the current period.

Gain on Sale of Subsidiary.Results of operations for the six months ended July 27, 2001
include the gain of $7.6 million from the sale of our Humphrey, Inc. subsidiary. There was no similar gain in the current period.

Other Income and Expense, Net.Other income and expense, net, which consist principally of interest
income was $0.7 million and $0.8 million for the three and six months ended August 2, 2002, respectively, as compared to $1.7 million and $3.5 million during the
comparable prior year periods. The decrease was
due to the combination of a reduction in the amount funds available for investment and reduced yields on our investments as short-term interest rates declined from their levels a year ago.

Credit for Income Taxes.The Company recorded a credit for income taxes of $3.8 million and
$5.9 million for the three and six months ended August 2, 2002, as compared to a credit for income

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taxes of $4.4 million and $9.1 million in the comparable prior year periods. The credit for income taxes recorded reflects the recognition of the tax benefit associated with REMEC's net
operating losses. The Company has continued to record tax benefit for these operating losses on the basis of its forecast which assumes attaining revenue levels and related margins, continuing with
cost cutting measures and implementing tax planning strategies which will ensure the realization of the recorded tax benefits. If the Company is unable to achieve its forecasted operating results and
complete its tax planning efforts, the Company will be unable to take tax benefit for future operating losses and depending on the short-fall, may have to reduce the carrying value of its
deferred tax assets.

Liquidity and capital resources

At August 2, 2002, REMEC had $116.0 million of working capital, which included cash and equivalents totaling $34.5 million. REMEC leases
certain office and production facilities under noncancelable agreements classified as operating leases. In accordance with generally accepted accounting principles, obligations under these
long-term leases are not recorded on the balance sheet as liabilities until payment is due. For further discussion of REMEC's lease obligations, see our Annual Report on
Form 10-K for the year ended January 31, 2002. During fiscal 2001, REMEC entered into a security agreement with a bank whereby REMEC agreed to pledge approximately
$17.0 million in connection with the collateralization of one of our facility leases with an affiliate of the bank. The collateral for this lease is included in our balance sheet as restricted
cash.

During
the six months ended August 2, 2002, operations used cash of approximately $11.0 million. The negative operating cash flow during this period was principally the
result of the Company's operating losses and cash used to fund working capital requirements including a $6.3 million increase in accounts receivable arising primarily as a result of
difficulties encountered in converting to our new accounting system.

During
the six months ended August 2, 2002, $6.9 million was used by investing activities consisting of $7.9 million of capital expenditures and a net cash inflow of
approximately $2.6 million resulting from the net cash proceeds received from the sale of certain real property.

Financing
activities provided approximately $1.4 million during the six months ended August 2, 2002, as a result of proceeds from the issuance of common stock by REMEC
under its Employee Stock Purchase Plan and from stock option exercises.

Our
future capital requirements will depend upon many factors, including the nature and timing of orders by OEM customers, the progress of our research and development efforts, expansion
of our marketing and sales efforts, and the status of competitive products. REMEC believes that available capital resources will be adequate to fund its operations for at least twelve months.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported
amounts of assets and liabilities, revenues and expenses, and related disclosure of any contingent assets and liabilities at the date of our financial statements. Actual results may differ from these
estimates under different assumptions or conditions.

Critical
accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially may result in materially different results under
different assumptions or conditions. We consider the following accounting policies to be those that are both most important to the portrayal of our financial results and that require the most
subjective judgment.

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Revenue Recognition.We derive the majority of our revenue from product sales and we recognize
revenue from these sales upon transfer of title to the product, which generally occurs upon shipment to the customer. We generally ship to our customers "Free on Board" shipping point. The Securities
and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition," provides guidance on the application of generally accepted accounting principles to selected revenue
recognition issues. We believe that our revenue recognition policy is consistent with this guidance and in accordance with generally accepted accounting principles. If our shipping policies, including
the point of title transfer, were to change, materially different results could occur.

Inventory Adjustments.Inventories are stated at the lower of weighted average cost or market. We
review the components of our inventory on a regular basis for excess, obsolete and impaired inventory based on estimated future usage and sales. As a general rule, stock levels in excess of one year's
expectation of usage or sales are fully reserved. The likelihood of any material inventory write-down is dependent on customer demand, competitive conditions or new product introductions
by us or our customers that vary from our current expectations. If future demand were significantly less favorable than projected by management, increases to the reserve would be required. At
August 2, 2002, inventories totaled $43.9 million, net of reserves for excess and obsolete inventory of $22.7 million and contract losses of $2.3 million.

Valuation of Goodwill, Intangible and Other Long-Lived Assets.In accordance with
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets and (SFAS) No. 144, Accounting for Impairment or Disposal of Long-Lived
Assets, we periodically assess the impairment of goodwill, intangible and other long-lived assets, which require us to make assumptions and judgments regarding the carrying value of these
assets. The assets are considered to be impaired if we determine that the carrying value may not be recoverable based upon our assessment of the following events or changes in circumstances: the
asset's ability to continue to generate income from operations and positive cash flow in future periods; any volatility or significant decline in our stock price and market capitalization compared to
our net book value; loss of legal ownership or title to the asset; significant changes in our strategic business objectives and utilization of the asset(s); and the impact of significant negative
industry or economic trends. In accordance with the provisions of SFAS 142 we discontinued amortization of goodwill and will perform impairment tests at least annually.

If
assets are considered to be impaired, the impairment we recognize is the amount by which the carrying value of the assets exceeds the fair value of the assets. In addition, we base
the useful lives and related amortization or depreciation expense on our estimate of the period that the assets will generate revenues or otherwise be used by us. If a change were to occur in any of
the above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase.

Accrued Restructuring Related Costs.To the extent that exact amounts are not determinable, we have
estimated amounts for the direct costs and liabilities related to our restructuring in accordance with the Emerging Issues Task Force ("EITF") Issue 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." We recorded a charge for restructuring related costs of
$17.3 million during fiscal 2002. At August 2, 2002, the remaining balance of accrued restructuring costs was $4.0 million. Materially different reported results would be likely
if any of the estimated costs or expenses were different from our estimations or if the approach, timing and extent of the restructuring plans adopted by management were different.

Valuation of Deferred Income Taxes.Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. Management is implementing tax strategies in the current year that are expected to provide for the realization of the deferred tax assets
recorded by the Company. The likelihood of a material change in our expected realization of these assets depends on: future taxable income allowing us to deduct tax loss carry-forwards against such

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future taxable income, the effectiveness of our tax planning and strategies among the various tax jurisdictions in which we operate and any significant changes in the tax treatment received in the
foreign jurisdictions in which we operate.

Item 3. Qualitative and Quantitative Disclosures About Market Risk

Interest Rate Risk.REMEC is exposed to changes in interest rates to the extent of its investments in
certain held-to-maturity securities. Under current REMEC policies, REMEC does not use interest rate derivative instruments to manage exposure to interest rate changes. A
hypothetical 100 basis point increase in interest rates in REMEC cash equivalent securities would not materially affect the fair value of these securities at August 2, 2002.

Foreign Currency Exchange Rate.REMEC's earnings and cash flow are subject to fluctuations due to
changes in foreign currency exchange rates. To a certain extent, foreign currency exchange rate movements also affect REMEC's competitive position, as exchange rate changes may affect business
practices and/or pricing strategies on non-U.S. based competitors. The primary foreign currency risk exposure is related to U.S. dollar to British pound and U.S. dollar and British pound
to Euro conversions. Considering both the anticipated cash flows from firm sales commitments and anticipated sales for the next quarter, a hypothetical 10% weakening of the U.S. dollar relative to all
other currencies would not materially adversely affect expected second quarter earnings or cash flows. This analysis is dependent on actual export sales during the next quarter occurring within 90% of
budgeted forecasts. The effect of the hypothetical change in exchange rates ignores the effect this movement may have on other variables including competitive risk. If it were possible to quantify
this competitive impact, the results could well be different than the sensitivity effects described above. In addition, it is unlikely that all currencies would uniformly strengthen or weaken relative
to the U.S. dollar. In reality, some currencies may weaken while others may strengthen. REMEC reviews its position each month for expected currency exchange rate movements

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PART IIOTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

The Annual Meeting (the "Annual Meeting") of Shareholders of REMEC was held on Friday, June 14, 2002, at REMEC's principal executive offices located at
3790 Via de la Valle, Suite 311, Del Mar, California. Of the 44,994,742 shares of our Common Stock, which could be voted at the Annual Meeting, 41,012,383 shares of our Common Stock, representing
91.15% of our outstanding Common Stock on the record date for the Annual Meeting of April 19, 2002, were represented at the Annual Meeting in person or by proxy, which constitutes a quorum. The
following items were voted upon by the shareholders with voting results as follows:

|                       |  | Votes for  |  | Votes against or withheld |  | Votes abstained |  | Broker non-votes
|---------------------- |  | ---------- |  | ------------------------- |  | --------------- |  | ----------------
|Ronald E. Ragland      |  | 32,866,925 |  | 8,133,458                 |  |                |  |                
|Thomas A. Corcoran     |  | 39,190,697 |  | 1,821,686                 |  |                |  |                
|Mark D. Dankberg       |  | 39,713,726 |  | 1,298,657                 |  |                |  |                
|William H. Gibbs       |  | 40,310,090 |  | 702,293                   |  |                |  |                
|Andre R. Horn          |  | 39,635,427 |  | 1,376,956                 |  |                |  |                
|Jeffrey M. Nash, Ph.D. |  | 39,724,589 |  | 1,287,794                 |  |                |  |                

|Votes for  |  | Votes against or withheld |  | Votes abstained |  | Broker non-votes
|---------- |  | ------------------------- |  | --------------- |  | ----------------
|36,409,640 |  | 2,064,193                 |  | 2,538,550       |  |                

Item 6. Exhibits and Reports on Form 8-K





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SIGNATURES

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

|REMEC, Inc.
(Registrant) |                                                                            
|------------------------ | ---------------------------------------------------------------------------
|By:                      | /s/ Ronald E. RaglandRonald E. Ragland Chairman and Chief Executive Officer
|By:                      | /s/ David L. MorashDavid L. Morash Chief Financial and Accounting Officer  
|Date:                    | September 16, 2002                                                         

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CERTIFICATIONS

I,
Ronald E. Ragland, Chief Executive Officer of REMEC, Inc., certify that:

1.    I
have reviewed this quarterly report on Form 10-Q of REMEC, Inc.;

2.    Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and

3.    Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

|Date: September 16, 2002 |  |                                                                             
|------------------------ |  | ----------------------------------------------------------------------------
|                         |  | /s/ Ronald E. RaglandRonald E. Ragland, Chairman and Chief Executive Officer
|                         |  |                                                                             

I,
David L. Morash, Chief Financial and Accounting Officer of REMEC, Inc., certify that:

1.    I
have reviewed this quarterly report on Form 10-Q of REMEC, Inc.;

2.    Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and

3.    Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

|Date: September 16, 2002 |  |                                                                           
|------------------------ |  | --------------------------------------------------------------------------
|                         |  | /s/ David L. MorashDavid L. Morash, Chief Financial and Accounting Officer

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