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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

For the fiscal year ended January 31, 2005

OR

For the transition period from                      to                     .

Commission File Number 001-16541

REMEC, INC.

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code: (858) 842-3000

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 Par Value Per Share

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past ninety (90) days:    Yes  x    No  ¨

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

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

The aggregate market value of the registrant’s common stock, $0.01 par value per share, held by non-affiliates of the registrant on January 31, 2005, the last business day of the registrant’s most recently completed fourth fiscal quarter, was $443,453,639 (based on the closing sales price of the registrant’s common stock on that date). Shares of the registrant’s common stock held by each officer and director and each person who owns 5% or more of the outstanding voting power of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not a determination for other purposes.

The number of outstanding shares of REMEC common stock as of April 8, 2005 was 62,562,424.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for REMEC’s Annual Meeting of Shareholders expected to be held in June 2005, a definitive copy of which will be filed with the SEC within 120 days after the end of the year covered by this Form 10-K, are incorporated by reference herein in Part III of this Form 10-K.

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REMEC, INC.

ANNUAL REPORT ON FORM 10-K

FOR FISCAL YEAR ENDED JANUARY 31, 2005

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Some of the statements made by us in this Annual Report on Form 10-K are forward-looking in nature, including but not limited to, statements relating to our future revenue, product development, demand, acceptance and market share, gross margins, levels of research and development, our management’s plans and objectives for our current and future operations, and other statements that are not historical facts. Forward-looking statements include, but are not limited to, statements that are not historical facts, and statements including forms of the words “intend,” “believe,” “will,” “may,” “could,” “expect,” “anticipate,” “plan,” “possible,” and similar terms. Actual results could differ materially due to a variety of factors, including the risks described in this Annual Report and the other documents we file from time to time with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

PART I

ITEM 1.    BUSINESS

INTRODUCTION

REMEC, Inc. (“REMEC” or the “Company” or “our” or “we”) was incorporated in California in January 1983. Our principal executive offices are located at 3790 Via de la Valle, Del Mar, California 92014, and the telephone number for that location is (858) 842-3000. Our Internet address is www.remec.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports and other Securities and Exchange Commission, or “SEC,” filings are available free of charge through our website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Upon written request, we will provide, without charge, a copy of this annual report on Form 10-K, including the consolidated financial statements, financial statement schedules and any exhibits for our most recent fiscal year. All requests should be sent to: REMEC, Inc., 3790 Via de la Valle, Del Mar, California 92014, Attn: Investor Relations. In addition, the public may read and copy materials filed by REMEC with the SEC at the SEC’s public reference room located at 450 Fifth St., N.W., Washington, D.C. 20549. Our common stock trades on the Nasdaq National Market under the symbol “REMC.”

REMEC designs and manufactures high frequency subsystems used in the transmission of voice, video and data traffic over wireless communications networks in the defense and commercial sectors. Our products are designed to improve the capacity, efficiency, quality and reliability of wireless communications infrastructure equipment. We also develop and manufacture sophisticated wireless communications equipment used in the defense industry, including communications equipment integrated into electronic systems for tactical aircraft, ships, ground systems, satellites, missile systems and smart weapons. We manufacture products that operate at the full range of frequencies currently used in wireless communications transmission, including radio frequencies, or “RF,” microwave frequencies and millimeter wave frequencies. By offering products that cover the entire frequency spectrum for wireless communications, we are able to address opportunities in the worldwide commercial mobile wireless communications and defense markets.

During the fiscal year 2005, the Company 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. Actions to date are detailed in the Significant Business Developments in Fiscal Year 2005 section below.

SIGNIFICANT BUSINESS DEVELOPMENTS IN FISCAL YEAR 2005

In March 2004, the Company announced that it intended to divest certain “non-core” assets that accounted for a modest percentage of our revenues, but with unacceptable levels of operational losses.

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In April 2004, we sold certain assets and transferred certain liabilities related to our Antenna and Artificial Intelligence (AI) business to the owner of Optimal RF, a California start-up company.

In May 2004, we sold certain assets and transferred certain liabilities related to our Fixed Wireless Access (FWA) business to Axxcelera Broadband Wireless, Inc., a wholly owned subsidiary of Moseley Associates, Inc.

The sale of these assets and elimination of the FWA, Antenna and AI activities and liabilities reduced revenues by less than 1% in the aggregate.

In August 2004, we sold our majority interest in REMEC Nanowave Technologies Inc., a subsidiary located in Toronto, Canada, to Euromill Equihold Inc., an Ontario, Canada corporation for $3.0 million cash and a note for $2.5 million.

In September 2004, we issued a press release announcing that we had retained Needham & Company, Inc. as financial advisors to explore strategic alternatives, including the sale of the Company’s various business units.

In October 2004, we sold certain assets and transferred certain liabilities related to our Components business unit to Spectrum Control, Inc. for $8 million cash, subject to certain post-closing adjustments.

In December 2004, we sold the China Network Optimization business for $3.7 million, the return of certain securities, and the assumption of certain liabilities.

In December 2004, we entered into an agreement to sell our Defense & Space group to Chelton Microwave for $260 million cash. The Merger Agreement provides that Chelton Microwave will pay us $260 million in cash, subject to certain post-closing adjustments and the assumption of certain liabilities. In conjunction with the sale, the Company will propose a Certificate of Amendment to our existing Restated Articles of Incorporation (the “Certificate of Amendment”). The Certificate of Amendment will cause our common stock to be reclassified (the “Reclassification”) so that we can distribute a substantial portion of the proceeds from the sale of Defense & Space to our shareholders. In the Reclassification, each outstanding share of common stock will be converted into a fractional share of common stock (the “New Common Stock”) and one (1) share of redeemable common stock (the “Redemption Stock”). We intend to complete the Reclassification by filing the Certificate of Amendment with the Secretary of State of the State of California immediately prior to the effective time of the Merger.

We plan to distribute a substantial portion of the aggregate merger consideration to our shareholders by redeeming the Redemption Stock immediately after the effective time of the Merger (the “Redemption”). The exact amount of merger consideration distributed to our shareholders in the Redemption will be determined by our Board of Directors prior to the effective time of the Merger (the “Aggregate Redemption Amount”). Our Board currently expects the Aggregate Redemption Amount will be no less than $150 million and no more than $200 million. Assuming the sale of REMEC Defense & Space and the Certificate of Amendment are approved and the Merger is completed, each shareholder of REMEC will be entitled to receive an amount in cash per share of Redemption Stock equal to the Aggregate Redemption Amount divided by the number of shares of Redemption Stock issued and outstanding immediately prior to the effective time of the Merger.

In March 2005, we entered into a definitive agreement to sell selected assets and transfer certain liabilities of REMEC’s Wireless Systems business to Powerwave Technologies, Inc. for 10 million shares of Powerwave’s common stock and $40 million in cash and notes. Based on Powerwave’s closing price on Friday, March 11, 2005, the transaction value is approximately $120 million. The transaction includes our RF conditioning products, filters, tower-mounted amplifiers and RF power amplifiers. The transaction also includes our manufacturing facilities in Costa Rica, China and the Philippines, as well as certain employee related costs, facility lease obligations and assets and liabilities related to the product lines being acquired. We will retain certain assets of the Wireless Systems business that include the ODU/Transceiver product line and the

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manufacturing services business. For the twelve months ended January 31, 2005, these retained businesses generated approximately $20 million and $55 million of revenues, respectively.

The proposed sale of the Wireless Systems business assets and the previously announced sale of the Defense & Space business are results of the Company’s ongoing review of strategic alternatives to increase shareholder value. The completion of these transactions will result in REMEC divesting the majority of its operating assets and liabilities. The Wireless Systems sale, like the sale of Defense & Space, requires shareholder approval that has not been obtained as of the filing of this Form 10-K.

INDUSTRY BACKGROUND

Consolidation Among Wireless Infrastructure OEMs and Service Providers Increases Competition.    A limited number of large original equipment manufacturers (“OEMs”) account for a majority of purchases of filter, antenna line, and amplifier products and subsystems in the wireless equipment market. This requires manufacturers of filter products, antenna line products and amplifier products and subsystems, such as us, to increase efforts to establish and maintain relationships with these important customers. In addition, consolidation among wireless service providers has increased competition for their business and required the OEM’s selling to these service providers to reduce sales prices, pursue manufacturing cost reductions and commit resources to developing new products which has a like impact on us and our competitors.

The Wireless Industry Is Extremely Competitive and Requires a Significant Investment in Up-front Engineering Development.    The competitive nature of the wireless industry results from the large number of suppliers at every level, from service providers to OEMs/subsystems and component suppliers. This results in an industry over-capacity condition. In addition, a significant up-front engineering investment is required in order to remain technically and cost competitive.

Demand for Mobile Wireless Services Necessitates Expansion of Wireless Infrastructure.    Wireless network service providers to date have focused primarily on satisfying the increasing demand for wireless telephony through the transmission of voice and low speed data signals over cellular systems and digital personal communication systems (“PCS”). The demand created by increased minutes of usage and data transmission requires substantial additional capital investment in wireless communications infrastructure equipment.

Advances in Mobile Wireless Communications Network Technology Will Require Additional Wireless Infrastructure Equipment.    The capacity and quality of domestic and international mobile wireless communications networks have evolved with advances in technology. In response to capacity and an increase in the level of service demands, service providers are expanding their current infrastructure and are implementing new wireless technologies, including third generation (“3G”) networks.

Demand for High Speed Internet Access and Other Data Services Increases the Need for Broadband Access.    Consumers around the world are using the Internet for an ever-increasing range of purposes, including email, high quality audio, streaming video and other multimedia services. Businesses are also using the Internet to enhance their reach to both residential and business consumers with applications such as electronic commerce, global marketing, customer support, web hosting, order fulfillment and supply management. The Internet also permits access to corporate data networks, including intranets and extranets, facilitating communication among corporate sites or with telecommuters or traveling employees. This increased usage requires an expanded capacity for the quick and reliable transmission of voice, video and data, which can be accomplished through broadband access.

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Wireless Infrastructure OEMs Rely on Subsystem Providers.    In order to meet the demand for mobile wireless and fixed wireless access broadband services, service providers normally utilize systems integrators or OEMs to build out infrastructure quickly, efficiently and in accordance with exacting performance specifications. In turn, many OEMs are looking to outsource the design and manufacture of highly integrated reliable subsystems in a cost-effective manner. This permits OEMs to accelerate their time to market and allows them to leverage their core competencies of full system design and integration. By outsourcing subsystems, OEMs promote competition among developers and manufacturers, which leads to technological innovations in wireless infrastructure equipment. Concurrently, OEMs are seeking to select a core group of subsystem and component providers in order to reduce the supply and management risks associated with the currently fragmented supplier base.

THE REMEC SOLUTION

We market our products to OEMs of wireless communications networks and network service providers, as well as to prime contractors in the defense industry. We provide customers complete product life-cycle management for design, prototyping and mass production of reliable microwave and RF hardware.

Our core competencies include the following:

Integration Expertise.    We design high performance subsystems over a broad range of RF, microwave and millimeter frequencies, which require sophisticated component integration. By integrating a number of required microwave functions into a single package, we are able to reduce the bill of materials, improve product performance, reduce cost and enhance yields and improve product reliability.

Concurrent Engineering.    We streamline and optimize the product development cycle by employing “concurrent engineering,” which includes continuous joint participation with our customers from conceptualization, participation by our suppliers in the design process, and consideration of manufacturing constraints and limitations while developing a product design.

Design for Test and Design for Manufacturability Feedback.    Our ability to plan both our internal manufacturing services and design capability reduces product time to market and unit costs. We retain control of each step of the design and manufacturing process while minimizing the use of outside sources and subcontractors for key manufacturing processes and services. This capability also improves quality control, reliability and our ability to implement volume production.

Broad Frequency Range.    Our technologies support the range of frequencies utilized for mobile wireless and broadband wireless applications. Our microwave technology expertise covers the frequency spectrum used for existing wireless communications. Many of our subsystem competitors only address select frequency bands in the subsystems they design, which makes them vulnerable to technological advances in products that use frequency bands they do not address. By having the ability to design and manufacture products across the breadth of the wireless communications market, we can better address our customers’ needs and capitalize on our overall design and manufacturing capabilities.

SEGMENT INFORMATION

Financial information regarding our business segments may be found in Note 11 to the Consolidated Financial Statements, which is incorporated herein by reference, and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Form 10-K.

Wireless Systems Segment

The Wireless Systems segment addresses the mobile wireless infrastructure market. The mobile wireless market includes the cellular infrastructure market that supports Code Division Multiple Access (“CDMA”), Time

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Division Multiple Access (“TDMA”), Global Standard for Mobile (“GSM”), Enhanced Data Rates for GSM Evolution (“EDGE”), Universal Mobile Telecommunications System (“UMTS”) and 3G networks. Wireless network service providers to date have focused primarily on satisfying the increasing demand for wireless telephony through the transmission of voice and low speed data signals over cellular systems and digital PCS. In addition, the capacity and quality of domestic and international mobile wireless communications networks have evolved with advances in technology. In response to capacity and increased level of service demands, service providers are expanding their current infrastructure and are implementing new wireless technologies.

Defense & Space Segment

The Defense and Space segment addresses a broad spectrum of RF and microwave products for systems integrated by prime contractors in military and space applications. These products range from critical components and integrated modules to advanced integrated microwave assemblies for radar, missiles, electronic warfare and communication/navigation systems.

PRODUCTS

Wireless Systems Segment Products

We provide our products to worldwide OEMs and service providers. These products include tower mounted amplifiers and boosters, power amplifiers, medium power and low noise amplifiers, integrated filtering and combining systems, filters, oscillators, mixers, transceivers and radio outdoor units.

We provide a wide range of RF products and system solutions for use in cellular, TDMA, GSM, CDMA, PCS, PCN, EDGE and UMTS infrastructure networks. Our product lines include filter products, antenna line products and amplifier products and subsystems. Our products are designed to improve the capacity, coverage, efficiency, quality and reliability of today’s mobile infrastructure equipment networks.

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Defense & Space Products

We provide RF and microwave products for electronic warfare, radar and communications/navigation systems for the defense market. We design, build and integrate these products and their microwave functionality into integrated subsystems for defense programs that we believe have a high probability of follow-on production. Our products are integrated into various defense tactical aircraft, satellites, missile systems and smart weapons that comprise the majority of high priority platforms of our customers. These RF and microwave systems, subsystems and integrated components are comprised of specialized combinations of components that perform a variety of microwave functions that include filters, couplers, power divider switches, amplifiers, voltage controlled oscillators, mixers and multipliers. Defense industry programs for which we provide subsystems and integrated components include the following:

We also provide reliable designs and hardware solutions for U.S. space applications. Our products are integrated into many global positioning, military and communications satellites.

In addition, our Monolithic Microwave Integrated Circuits (MMIC) supports U.S. government research labs and other customers with state-of-the-art design services for next generation system capabilities such as “system on a chip” solutions for high-volume T/R modules.

MANUFACTURING

Wireless Systems

The Wireless Systems segment has the ability to manufacture microwave products in high-volume, including test and critical hybrid circuits. Our manufacturing is organized into three main activities: volume manufacturing, new product introduction and manufacturing support. Volume manufacturing includes those sites that specialize in building our custom designs and those that have expertise in building to customer designs. Our volume manufacturing capabilities are located in several locations:

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As part of our corporate strategy to globally manufacture in cost competitive locations that meet our customer’s needs, we commit significant resources to the development of and standardization to best-in-class processes and procedures. These manufacturing standards are developed in close coordination with our plants and our design groups. This allows our engineers to develop highly integrated products using a variety of packaging technologies and our manufacturing facilities to build those products using the most efficient and effective techniques. Additionally, we pursue the automation of key assembly and test processes in order to build on our competitive advantages.

All of our Wireless Systems segment factories and design centers have been certified to ISO-9001 or ISO-9002, as appropriate.

Defense & Space

The Defense & Space segment conducts its manufacturing activities at two major sites in North America. The primary manufacturing facility is located in San Diego, California. This facility includes design engineering, program management, manufacturing engineering, quality, supply chain management and other support functions for the U.S. based portion of this business.

REMEC Mexico, SA de CV, located in Tijuana, Mexico, serves as a low-cost manufacturing facility that augments the high production activities of our San Diego site. The close proximity to our San Diego location enables a full range of timely technical support for our high-volume manufacturing activities. Both locations have ISO 9001:2000 certifications. The San Diego location also maintains a MIL-PRF-38534 certification status for manufacturing microwave hybrid assemblies. In addition, the Defense Supply Center Columbus (DSCC) recently certified our environmental lab in San Diego for the Commercial Lab Suitability on MIL-STD-833 test methods. On-site manufacturing capabilities include:

We maintain research and development facilities in Richardson, Texas and Forsyth, Missouri. The research and development team enables REMEC to provide vertically integrated solutions from custom circuit design through component development. Services include standard and custom MMIC and transistor design, “fabless” microwave and millimeterwave packaging solutions, and direct circuit/radio frequency (DC/RF) on wafer testing.

SUPPLY CHAIN

Our products are manufactured from both standard components and parts that are built to specifications by other manufacturers. Our most significant raw materials are aluminum, ceramics and liquid nitrogen. While there have been some shortages in components and other materials, we have generally been able to obtain materials

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and components from a variety of sources to meet our needs. We develop and maintain alternative sources for essential materials and components. For most of our purchased parts, we do not have a concentration of sources of supply materials, labor or services that, if suddenly eliminated, would severely impact our operations.

CUSTOMERS

REMEC derives a significant portion of our revenues from a limited group of customers. For the fiscal year ended January 31, 2005, our top ten customers comprised approximately 66% of revenues, compared to 69% in 2004 and 69% in 2003. For fiscal year 2005, three customers individually accounted for 10% or more of total fiscal revenues. Siemens accounted for 15%, Nokia Telecommunications Company 10%, and Northrop Grumman Corporation 10% of total fiscal revenues. We anticipate that we will continue to derive a significant portion of our revenues from sales to a relatively small group of customers. Our revenues would be significantly reduced if any of these customers cancel, reduce or delay orders or product shipments on account of their manufacturing or supply difficulties, financial difficulties or reduction in demand for their systems and products or otherwise.

We sell our commercial wireless communications products primarily to OEMs, which in turn integrate our products into wireless infrastructure equipment solutions sold to network service providers. In addition, we also sell certain niche products directly to network service providers.

We sell RF and microwave equipment to major U.S. defense prime contractors for integration into larger systems, primarily radar electronic warfare, communications and navigation. Our customers for defense products include BAE Systems PLC, ITT Industries, Northrop Grumman Corporation, Raytheon Company, Lockheed Martin Corporation and L-3 Communications.

SALES AND MARKETING

REMEC uses a team-based sales approach to facilitate close management of relationships at multiple levels of a customer’s organization, including management, engineering and purchasing personnel. Our integrated sales approach involves a team consisting of a senior executive, a business development specialist, members of our engineering department and local sales representation. Our executive officers are also involved in our relationships with our major customers. To identify sales opportunities, we primarily utilize a direct sales force supplemented by a group of manufacturer sales representatives.

We have direct sales offices in Europe and Asia and our international presence is increasing. Sales to customers residing outside of the U.S. represented 51%, 48% and 37% of net sales in fiscal years ended January 31, 2005, 2004 and 2003, respectively. Our international sales figures do not include products sold to foreign end users by our domestic customers.

A summary of our domestic and international net revenue and net property, plant and equipment is set forth in Note 11 to the Consolidated Financial Statements appearing elsewhere in this Form 10-K, which is incorporated herein by reference.

BACKLOG

Our backlog, calculated as the aggregate of the sales price of orders received from customers less revenue recognized, was approximately $157.8 million on January 31, 2005 and $185.3 million on January 31, 2004. Approximately $29.1 million of the January 31, 2005 backlog and $44.8 million of the January 31, 2004 backlog was for the Wireless Systems segment.

Product orders in our backlog are frequently subject to changes in delivery schedules or to cancellation at the option of the purchaser without significant penalty. While we regularly review our backlog of orders to

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ensure that it adequately reflects product orders expected to be shipped within a one-year period, we cannot offer any assurance that such orders will actually be shipped or that such orders will not be cancelled in the future. We make regular adjustments to our backlog as customer delivery schedules change and in response to changes in our production schedule. Accordingly, backlog as of any particular date should not be considered a reliable indicator of sales for any future period and our revenues in any given period may depend substantially on orders booked in that period.

COMPETITION

The markets for our products are extremely competitive and are characterized by rapid technological change, new product development, product obsolescence and evolving industry standards. In addition, price competition is intense and the market prices and margins of our products decline as competitors begin making similar products. We face competition from component/subsystem manufacturers, but we believe that our primary competition is from the captive manufacturing operations of large wireless communications OEMs, including nearly all of the major telecommunications equipment providers, and defense prime contractors. We believe that our future success depends largely upon the extent to which these OEMs and defense prime contractors elect to purchase subsystems and integrated components from outside sources such as us. OEMs and defense prime contractors could develop greater internal capabilities and manufacture these products exclusively in-house, rather than outsourcing them, which would have a negative impact on our sales.

RESEARCH AND DEVELOPMENT

Our core competencies, including our emphasis on concurrent engineering, rely heavily on our research and development capabilities. These capabilities, including our breadth of engineering skills, have allowed us to develop products that operate across the range of frequencies used in commercial wireless communications. Research and development expenses for the fiscal years ended January 31, 2005, 2004 and 2003 were $40.6 million, $47.4 million and $29.4 million, respectively.

Our research and development efforts in the defense industry are conducted in direct response to the unique requirements of a customer’s order and, accordingly, are included in cost of sales and the related funding in net sales. We believe that to remain a technology leader in the future we will need to invest significant financial resources in research and development. The results of the research and development programs continue to enhance and add value to our already impressive integration capability.

INTELLECTUAL PROPERTY

REMEC currently has more than 57 patents and approximately 6 patents pending. These patents include technologies for improving performance and reducing the cost of power amplifiers, multimode intelligent components, filters and transceivers. We believe these patents provide a competitive advantage and are important to our success as a supplier of RF and microwave equipment supplier. Our intellectual property also includes a variety of trade secrets and technology licenses.

In order to protect our intellectual property rights, we rely on a documented intellectual property protection process that includes patents, trade secrets, copyrights and trademarks and employee and third party nondisclosure agreements. We also limit access to and distribution of proprietary information. The steps that we have taken to protect our intellectual property rights may not be adequate to prevent misappropriation of our technology or to preclude competitors from independently developing similar technology.

GOVERNMENT REGULATIONS

Our products are incorporated into commercial wireless communications systems that are subject to regulation domestically by the FCC and internationally by other government agencies. Although the equipment

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operators and not us are usually responsible for compliance with these regulations, regulatory changes, including changes in the allocation of available frequency spectrum, could negatively affect our business by restricting development efforts by our customers, making current products obsolete or increasing the opportunity for additional competition. In addition, the increasing demand for wireless telecommunications has exerted pressure on regulatory bodies worldwide to adopt new standards for these products, generally following extensive investigation of and deliberation over competing technologies. The delays inherent in this governmental approval process have in the past caused and may in the future cause the cancellation, postponement or rescheduling of the installation of communications systems by our customers.

We are also subject to a variety of local, state, federal and foreign governmental regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture our products. The failure to comply with current or future regulations could result in the imposition of substantial fines on us, suspension of production, alteration of our manufacturing processes or cessation of operations.

Because of our participation in the defense industry, we are subject to audit from time to time of our compliance with government regulations by various agencies, including the Defense Contract Audit Agency, the Defense Security Service, the Office of Federal Contract Compliance Programs and the Defense Supply Center Columbus. These and other governmental agencies may also, from time to time, conduct inquiries or investigations that may cover a broad range of our business activity. Responding to any governmental audits, inquiries or investigations may involve significant expense and divert management attention. Also, an adverse finding in any such audit, inquiry or investigation could involve penalties.

We believe that we operate our business in material compliance with applicable government regulations.

EMPLOYEES

As of January 31, 2005, we had a total of 5,048 employees, including 3,646 in manufacturing and operations (mostly at low-cost, offshore facilities), 643 in research, development and engineering, 223 in quality assurance, 62 in sales and marketing, and 474 in administration and material procurement. We believe our future performance will depend in large part on our ability to attract and retain highly skilled employees.

RISKS RELATING TO OUR BUSINESS

Failure to complete the Defense & Space sale could cause REMEC’s stock price to decline.

If the shareholders do not approve the proposed sale of the Defense & Space business segment, there will be a negative impact on the Company’s earnings for the fiscal year 2006. If the Defense & Space sale is not completed, REMEC’s stock price may decline due to any or all of the following potential consequences:

In addition, if the sale is not completed, REMEC’s stock price may decline to the extent that the current market price of REMEC common stock reflects a market assumption that the Defense & Space sale will be completed.

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Failure to complete the Wireless Systems sale could cause REMEC’s stock price to decline.

If the shareholders do not approve the proposed sale of the Wireless Systems asset sale to Powerwave Technologies, Inc, there will be a negative impact on the Company’s earnings for the fiscal year 2006. If the Wireless Systems sale is not completed, REMEC’s stock price may decline due to any or all of the following potential consequences:

In addition, if the sale is not completed, REMEC’s stock price may decline to the extent that the current market price of REMEC common stock reflects a market assumption that the Wireless Systems asset sale will be completed.

We may not be able to borrow funds under our credit facility if we are not able to meet the conditions to borrowing in the facility.

This facility contains various conditions, covenants and representations with which we must be in compliance in order to borrow funds. We utilized this facility as security for certain financial transactions entered into by us and only briefly used it for borrowing purposes during the fiscal year 2005. All of this facility is used to guarantee certain business arrangements including letters of credit and our factoring facility. As of January 31, 2005, we were in compliance with the financial covenants contained in this credit facility. In addition, we may need additional capital to support our operations, which may be unavailable or costly.

As of January 31, 2005, our capital resources consisted of approximately $36.8 million in cash, cash equivalents and short-term investments. We anticipate that our existing capital resources will permit us to meet our capital and operational requirements through at least January 31, 2006. We base this expectation on our current operating plan, which may change as a result of many factors, including the following:

While management believes that we have adequate capital resources, there can be no assurance that this is the case. For example, if the shareholders do not approve the sale of our Defense & Space business unit or our operational performance varies substantially from our operating plan, our existing capital resources may not be sufficient to fund our operations. To the extent that our capital resources (including our credit facility mentioned above) are insufficient to meet our future capital requirements, we may have to curtail operations significantly.

There may be material weaknesses identified in our Sarbanes-Oxley internal control audit

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company has been engaged in an evaluation of the effectiveness of its internal controls over financial reporting. Due to the magnitude of the Company’s Section 404 project plan, which included many time-critical milestones, the Company’s evaluation of its internal control over financial reporting is not complete as of this filing.

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Securities and Exchange Commission Release No. 34-50754, subject to certain conditions, provides up to 45 additional days beyond the due date of this Annual Report on Form 10-K for the filing of management’s annual report on internal control over financial reporting required by Item 308(a) of Regulation S-K and the related attestation report of the independent registered public accounting firm required by Item 308(b) of Regulation S-K. Pursuant to the Release, management’s report on internal control over financial reporting and the associated report on the audit of management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of January 31, 2005 are not filed herein and are expected to be filed no later than June 1, 2005 with an amendment to this Annual Report on Form 10-K.

Although management has not identified any material weaknesses at this time, there can be no assurance that as a result of completing our evaluation on internal control over financial reporting, or our external auditors completing their attestation report on our assessment, other deficiencies will not be identified or that any such deficiencies identified, either alone or in combination with others, will not be considered a material weakness.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

Current economic conditions are uncertain.

Current conditions in the domestic and global economies are extremely uncertain. As a result, it is difficult to estimate the level of growth, if any, for the economy as a whole, and even more difficult to estimate growth, if any, in the specific markets in which we participate. Because our budgeting and forecasting are dependent upon estimates regarding the markets we serve, the prevailing economic uncertainty renders estimates of future income and expenditures even more difficult than usual to make. The future direction of the overall domestic and global economies will have a significant impact on our overall performance.

The terrorist attacks in 2001, current conflicts in the Middle East and the potential for future terrorist attacks and conflicts have created many economic and political uncertainties that have severely impacted the global economy. We experienced a decline in demand for our products after the terrorist attacks in 2001. The long-term effects of these economic and political uncertainties on our business and the global economy remain unknown.

Operating in the commercial wireless communications industry carries certain risks.

Our success in the commercial wireless market depends in large part on investments by our customers in expensive wireless infrastructure equipment. Because the commercial wireless market in the U.S. and Europe has only recently begun to deploy 3G, it is difficult to predict the rate at which this market will grow, if at all. Our customers may reduce their capital expenditures in response to current or anticipated reductions in consumer demand for their products and services. If the current economic uncertainty continues, demand for our commercial wireless products may be sharply reduced or may fail to develop, which would adversely affect our revenues. In addition, the need to invest in the engineering, research and development and marketing required to penetrate markets and maintain service and support capabilities limits our ability to reduce expenses during downturns.

The failure of our customers to sell wireless communications network solutions that include our subsystems and integrated components would harm our sales.

In general, our integrated components and subsystems must be custom designed for use in our customers’ products. As a result, we sell our products to a relatively small group of customers, and our products must be specifically engineered for each customer. While we select our customers based on our assessment of their ability to succeed in the marketplace, we cannot be sure of their success. If our customers are not successful, the length of time required to re-engineer our product for another customer may delay our sales or prohibit us from getting

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our products to the marketplace in a timely manner or at all. In addition, many of our customers can internally design and/or manufacture their own RF and microwave subsystems and systems. If, for any reason, our customers decide to produce their RF and microwave subsystems and systems internally, increase the percentage of their internal production, require us to participate in joint venture manufacturing with them or compete directly against us, our revenues would decrease which would adversely impact our results of operations.

Our production schedules and manufacturing processes may cause fluctuations in quarterly results.

Our quarterly results have varied significantly in the past and are likely to continue to vary significantly. These fluctuations are due to a number of factors, including the following: timing, cancellation or rescheduling of customer estimates for product; customer orders and shipments; pricing and mix of products sold; introduction of new products; our ability to obtain components and subassemblies from contract manufacturers and suppliers; and variations in manufacturing efficiencies. Any one of these factors could substantially affect our results of operations for any particular fiscal quarter.

Our continued efforts to service the defense market may limit our growth in revenues.

We make a substantial portion of our sales to the U.S. defense market. As a result, lower defense spending by the U.S. government could materially reduce our revenues. Lower defense spending by the U.S. government on REMEC programs might occur because of defense budget cuts, general budget cuts or other causes.

If we don’t complete the sale of the Defense & Space group, we expect to continue to derive a substantial portion of our revenues from defense programs and to develop microwave products for defense applications. If a significant defense program or contract ends, and we fail to replace sales from that program or contract, our revenues will decline. In addition, large portions of our expenses are fixed and difficult to reduce, thus magnifying the negative effect of any shortfall in revenue.

Our defense development contracts could cause our quarterly results to fluctuate.

We have entered into more defense industry development contracts as a source of defense revenues. Development contr