<PAGE>
 
--------------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
                       SECURITIES AND EXCHANGE COMMISSION                   
                                                                            
                                                                            
                             WASHINGTON, D.C. 20549                         
                                                                            
                                                                            
                                   FORM 10 KSB                              
                                                                            
                                                                            
    [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                                                                            
                    FOR THE FISCAL YEAR ENDED MARCH 31, 1997                
                                                                            
                                                                            
                                                                            
    [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934                                               
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
              For the transition period from _________ to _________
                                                                            
                                                                            

                                                                            
                         Commission File Number 0-27250

                                                                            
                            AML COMMUNICATIONS, INC.
            --------------------------------------------------------
                                                                            
             (Exact name of Registrant as specified in its charter)
                                                                            
                                                                            

                                                                            
                                                                            
                  DELAWARE                               77-0130894
            --------------------                 -------------------------  
      (State or other jurisdiction of       (I.R.S. Employer Identification No.)
       incorporation or organization)

                                                                            
         1000 AVENIDA ACASO, CAMARILLO, CALIFORNIA                93012
  ---------------------------------------------------------------------     
      (Address of principal executive offices)               (Zip Code)
                                                                            

                                                                            
                                 (805) 388-1345
                            -------------------------
              (Registrant's telephone number, including area code)
                                                                            
                                                                            

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

                                                                            
            Title of each class      Name of each exchange on which registered
          -----------------------    -----------------------------------------
                    NONE                             NONE
                                                                              

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

                                                                              
                                 Title of Class
                          ----------------------------
                          COMMON STOCK, $.01 PAR VALUE
                                                                              

                                                                              
                                                                              
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 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 Days. Yes    X          No 
                                         ----           ----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B 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-KSB or any amendment to
this Form 10-KSB. [X]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant on June 23, 1997, was approximately $10,215,766. The stock price for
computational purposes was $2.90, based on the closing sale price for the
Registrant's common stock on the NASDAQ National Market on June 23, 1997. This
value is not intended to be a representation as to the value or worth of the
Registrant's shares of common stock. The number of non-affiliates of the
Registrant has been calculated by subtracting shares held by persons affiliated
with the Registrant from outstanding shares. The number of shares of the
Registrant's common stock outstanding on June 23, 1997 was 6,129,406.
   
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's definitive
Proxy Statement for the Annual Meeting of Stockholders to be held on August 27,
1997, are incorporated by reference into Part III, Items 10, 11 and 12 of this
Form 10-KSB. The Proxy Statement will be filed within 120 days after the end of
the fiscal year covered by this report.[X]
   

  Registrant's revenues for its most recent fiscal year:  $14,091,000
  Transitional Business Disclosure Format (Check One).  Yes       No   X
                                                             ----     ----
--------------------------------------------------------------------------------
<PAGE>
 
This Annual Report on Form 10-KSB contains certain forward-looking statements,
the realization of which may be impacted by certain important factors which are
discussed in "Additional Factors That May Affect Future Results," under Item 6,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
   



                                     PART I

ITEM 1.   DESCRIPTION OF BUSINESS


INTRODUCTION

   
     AML Communications, Inc. ("AML" or the "Company") was incorporated in
California in 1986 as Advanced Milliwave Laboratories, Inc. In early 1994 the
Company changed its name to AML Communications, Inc. In December 1995, in
connection with the initial public offering of its common stock, the Company
changed its state of incorporation from California to Delaware. In May 1996, the
Company moved its principal offices to 1000 Avenida Acaso, Camarillo, California
93012.

     The Company designs, manufactures and markets amplifiers and related
products for the cellular, personal communication services ("PCS") and other
communication markets. AML's cellular products, introduced in late 1994, have
historically been marketed mainly to cellular operators and are designed to
enable them to increase significantly the quality and quantity of calls
processed by new and existing cellular base stations. The Company has recently
introduced, or is in the process of introducing, a number of products for the
PCS marketplace. During the fiscal year ended March 31, 1997 the Company entered
the satellite communication gateway market by offering a high power amplifier
for data transmission applications in a low earth orbit ("LEO") satellite
communications network.
   

     Since 1993, the Company has offered multicarrier amplifiers to the wireless
telephony segment of the wireless communications industry. Since its inception,
AML has also provided a large number of catalog and custom amplifiers to
original equipment manufacturers ("OEMs") and other customers in the
communications market. AML's wireless products support a broad range of analog
and digital transmission standards and formats including AMPS, TACS, NMT, TDMA,
CDMA, GSM and FHMA.


INDUSTRY BACKGROUND

     The market for wireless communications services has grown substantially
during the past decade as cellular, PCS, wireless telephony, satellite
communication and other new and emerging applications have become increasingly
accessible and affordable to growing numbers of consumers. Among the various
types of wireless services, the market for cellular communications is currently
the largest, but the PCS market offers the most growth opportunities.

   
     The Cellular Marketplace. Cellular market growth in North America can be
attributed to decreasing prices, greater access to cellular service and
increased consumer acceptance. Consumers now demand competitive pricing, smaller
cellular phones, more efficient batteries, greater geographic coverage and more
consistent service. The growth in cellular communications and the number of
subscribers in relation to the limited amount of Radio Frequency ("RF") spectrum
assigned to cellular and other wireless services has required substantial
investment by cellular system operators in cellular infrastructure equipment.
This investment enables cellular system operators to expand system capacity to
meet increasing needs and to handle increased traffic with a minimum of
distortion or interference.

     A cellular system consists of a number of cells which are networked to form
a cellular system operator's geographic coverage area. Each cell has a base
station which houses the equipment that transmits and receives telephone calls
between the cellular subscriber within the cell and the switching office
connected to the local wireline telephone system. Such base station equipment
includes an antenna and a series of transceivers, power amplifiers and cavity
filters. Large cells, which generally cover a geographic area of up to five
miles in radius, are commonly referred to as "macrocells".

                                       2
<PAGE>
 
     Cellular system operators in densely populated areas are able to expand the
capacity of their existing cellular systems by incorporating smaller cells,
commonly referred to as "microcells," that divide macrocells into several
smaller cells, typically one to three miles in radius. The base stations for
microcells are substantially smaller physically than base stations for
macrocells. Microcells provide a means to increase local capacity and/or
coverage. They require less expensive equipment at each base station, but
normally offer lower capacity and smaller areas of coverage than macrocells.
Within the latter half of fiscal 1997, OEMs had developed improved base stations
enabling the operator to achieve cost effective performance without having to
upgrade to an AML amplifier.
   
     The ability of cellular system operators to increase system capacity
through the use of microcells is largely dependent on their ability to broadcast
multiple signals with acceptable levels of interference and distortion. In
cellular systems, the amplifier is generally the greatest source of signal
interference and distortion, particularly with multicarrier high power
amplifiers. Consequently, obtaining amplifiers which can transmit and receive
multiple signals with low distortion or interference from adjacent signals
("high spectral purity") is critical to a cellular system operator's ability to
increase system capacity. Substantial resources and technical expertise are
required to design and manufacture multicarrier power amplifiers with high
spectral purity. To achieve high spectral purity, multicarrier amplifier systems
must have high interference cancellation properties.

     The PCS Marketplace. PCS networks operate in a substantially similar manner
as cellular networks, except that PCS networks operate at a higher frequency
range in the available RF spectrum with "digital" formats, within the 1800 and
1900 MHz frequencies. Transmissions at the higher frequencies utilized by PCS
networks have shorter transmission waves as compared to cellular frequency
transmissions, which limit distances PCS transmissions can travel without
significant degradation. The PCS market is characterized by a major up front
investment by operators and, as such, is under quick deployment pressure. The
PCS initial deployment, in its quest to obtain swift coverage, is mainly
employing single carrier transmit amplifiers. Multicarrier amplifiers for this
service are yet to be deployed until such time the service to end users
proliferates and capacity limitations are evident.
   
     Unlike cellular deployment where the proliferation of both mast head and
ground based receive amplifiers was limited, the Company believes such products
are likely to be demanded by a significant number of sites. The Company is in
the process of introducing a series of receive amplifiers for PCS service.

     Other Wireless Markets. Satellite communication systems are expected to
provide a cost effective method for global messaging. The LEO satellites are
physically small but require substantial levels of power to maintain effective
communication. Amplifiers are therefore needed to strengthen the signal
emanating from gateways across the globe as they are transmitted to the LEO
satellites.

     Wireless telephony, Specialized Mobile Radio ("SMR") and other markets
require various applications of wireless communication signal enhancement by use
of an amplifier. Wireless telephony systems are increasingly being adopted in
developing markets to more quickly implement telephone communication services.
SMR, like cellular/PCS communications, is a two-way service for both speech and
data. The custom communications market consists of small niche segments within
the larger communications market: long-haul radio communications, land mobile
communications, surveillance communications, ground-to-air communications,
microwave communications, broadband communications and telemetry tracking.
   


THE AML STRATEGY

   
     Using its proprietary technology and expertise in interference
cancellation, the Company's strategy is to focus on the needs of system
operators to develop technologically advanced amplifier based products. While
providing a broad range of amplifier based products to the communications
industry in general, AML has recently developed products which address the
technical problems faced by cellular and PCS system operators as a result of the
rapid growth in cellular and PCS telephone use and the resulting need to
increase system coverage and capacity. During the third quarter of fiscal 1995,
AML introduced its Microcell line of multicarrier amplifier based products,
designed to permit the cellular system operator to split macrocells into several
microcells more cost effectively, thereby increasing capacity. Additionally, in
the third quarter of fiscal 1997, AML introduced the M140 amplifier, the
Company's most

                                       3
<PAGE>
 
powerful multicarrier amplifier. During the fourth quarter of fiscal 1997 the
Company introduced its first mast head receive amplifier for PCS service and its
first amplifier for the satellite communication gateway market. The Company's
business strategy focuses primarily on the cellular and PCS communications
market and consists of the following elements:

     Market to System Operators and OEMs. Since 1994, the Company has positioned
itself as a supplier of amplifier products to system operating companies. This
strategy is based on the Company's belief that operators sometimes source their
own equipment rather than always depend on OEMs for complete systems. The
Company believes that such operators are becoming more sophisticated about
equipment purchases and are seeking providers that offer innovative solutions to
technical problems rather than standardized systems. Based on the performance
characteristics and functionality of its products, AML believes it will be able
to further penetrate the infrastructure equipment market by focusing its
marketing efforts on the system operators. As a result of not procuring a
significant amount of business from the more traditional channel to market, the
OEM, the Company operates without a substantial backlog. More recently, the
Company has expanded its effort to penetrate OEM accounts to improve its ability
to make projections with greater reliability.
   
     Maintain a Technology Leadership Position. The Company believes its
interference cancellation technologies and its receive amplifier expertise are
among the most advanced that are commercially available in the industry, both in
performance and diversity of methodology.

     Develop Innovative Proprietary Products. The Company has pursued the
development of amplifier products which are highly innovative and are not
standard "commodity" type products. Utilizing its proprietary technology and
expertise in interference cancellation, the Company has developed and intends to
continue to develop products which combine basic components in unique and high
performance configurations to command higher prices in the cellular/PCS
infrastructure equipment market.
   
     Provide Comprehensive Customer Support. The Company works closely with its
customers throughout the design process to assist them in refining and
developing their amplifier specifications. Customer support involves problem
evaluation, engineering recommendations and solution implementation. After the
product is delivered, the Company continues to provide technical support to
facilitate system integration, implementation and operation. Through this
process, the Company believes it will develop new product definitions and
implementations to enhance further the strategic position of the Company in the
wireless market.


TECHNOLOGY

     Wireless Transmit Technology. The traditional transmit section of a base
station consists of a series of transceivers, power amplifiers, tunable cavity
filters and a transmit antenna to transmit the signal to the cellular or PCS
telephone user. The power amplifier within the base station receives a
relatively weak signal from the cellular transceiver and boosts the power of the
outgoing cellular signal so that it is broadcast throughout the cell. The RF
power levels necessary to transmit the signal over the required range must be
achieved without distorting the signal. The signal must be amplified and remain
in the assigned RF channel with low distortion and interference with adjacent
channels.

     Because cellular and PCS system operators are allocated a specific RF
spectrum band and specified channels, system operators seek to use such bands
and channels more efficiently in order to increase system capacity. To gain
flexibility and increase spectrum efficiency, an operator may choose
"multicarrier amplification," in which all channels are amplified simultaneously
by one amplifier, rather than each channel using a separate single amplifier. A
multicarrier amplifier combines the performance capabilities of up to 21 single
carrier amplifiers into one unit, eliminating the need for numerous single
carrier amplifiers and their corresponding tunable cavity filters. Such a
multicarrier amplifier requires less space than multiple single amplifiers which
reduces the size and cost of a base station and facilitates the trend toward the
use of microcells to increase system capacity.

     Multicarrier amplification, particularly at high power levels, generally
results in an increase in the spurious interfering emissions generated by the
amplifier. Reducing or eliminating spurious interfering emissions generated by
high power amplifiers may be accomplished through interference cancellation
techniques involving highly advanced 

                                       4
<PAGE>
 
processing circuitry methods. The Company has developed certain proprietary
technology and methods to achieve high interference cancellation in its
amplifiers, technically known as "feedforward" and "lossless-feedback"
implementations.

     Cellular system operators are also expanding the capacity of their systems
by transitioning from analog technologies to digital technologies. Cellular
systems based on analog technology are capable of carrying only one call per
channel of RF spectrum. Current analog standards and formats include the
Advanced Mobile Phone Services ("AMPS") in North America and the Total Access
Communication System ("TACS") and Nordic Mobile Telephone ("NMT") in Europe.
Digital systems allow a given channel of spectrum to carry multiple calls
simultaneously thereby increasing system capacity. Conversion to digital
transmission is expected to allow three to eight times as many voice
conversations to occupy the same frequency bands. Current digital standards and
formats include Time Division Multiple Access ("TDMA") and Code Division
Multiple Access ("CDMA") in North America and the Global System for Mobile
Communications ("GSM") and Digital Communication Service at 1800 MHz
("DCS-1800") in Europe. An additional cellular system operating in the SMR
spectrum is in deployment in the United States. This system uses digital
techniques that include Frequency Hopping Multiple Access ("FHMA"). The
Company's products support many analog and digital standards and formats,
including AMPS, TACS, NMT, TDMA, CDMA, GSM and FHMA. PCS system operators have
subscribed to all digital transmission format (GSM, TDMA, or CDMA).
   
     Wireless Receive Technology. The receiving section of a base station
commonly uses two antennas to create a more efficient receive antenna pattern
than would be the case with a single antenna. The use of low noise amplifiers
with the base station's antennas increases the performance of a cellular or PCS
system operator's receive system. Low noise amplifiers receive a weak signal
from the antennas and boost the power of the signal with reduced levels of
noise. The Company employs complex circuitry and techniques, including the use
of sensitive gallium arsenide ("GaAS") transistors to produce low noise and very
low noise amplifiers.
   


MARKETS

     The market for wireless communications services has grown substantially
during the past decade as cellular, PCS, wireless telephony, SMR and other new
and emerging applications have become increasingly accessible and affordable to
growing numbers of consumers. The growth of these markets has increased the
demand for the Company's products.

     Cellular Market. The market for cellular communications is currently the
largest of the wireless services. Cellular system operators have expanded the
capacity of their existing cellular systems by splitting macrocells into smaller
microcells. The Company believes that the relatively small size, high power and
performance characteristics of its microcell multicarrier amplifier product line
has been particularly attractive to cellular system operators when purchasing
infrastructure equipment for such new cell sites. Although this market is the
largest, its growth rate has declined significantly with the introduction and
deployment of PCS.

     PCS Market. In light of the growth of cellular communications and
recognizing the need for additional competitive wireless capacity the Federal
Communications Commission auctioned spectrum at 1850 MHz to 1990 MHz. The
wireless services occupying these bands are PCS. Installation of the
infrastructure to support PCS domestically in the United States commenced in
1996 and is expected to continue beyond 2000. Unlike cellular which took over 12
years to reach its present level of infrastructure build-out, PCS build-out is
expected to occur on an accelerated basis. The reasons for this include the need
for PCS to compete effectively with existing cellular coverage and services plus
a desire on the part of many PCS operators to be the first to offer PCS service
in order to capture the highest possible market share.
   
     The Company believes that PCS represents a significant opportunity for both
the system operator and OEM sales. In support of this opportunity the Company
has developed a line of mast head receive amplifiers, repeaters and transmit
power amplifiers.
   
     Wireless Telephony Market. Wireless telephony systems are increasingly
being adopted in developing markets to more quickly implement telephone
communication services. In certain developing countries, such as Indonesia and
Brazil, wireless telephony systems provide an attractive alternative to copper
and fiber optic cable based systems, with 

                                       5
<PAGE>
 
the potential to be implemented more quickly and at lower cost than wireline
telephone systems. The Company designs, manufactures and markets multicarrier
amplifiers for infrastructure equipment systems in the wireless telephony
market.

     Satellite Communications and Other Markets. The satellite communications
market is a small niche segment within the larger communications market to
provide across the globe mass digital communications. Other markets include:
surveillance communications, ground-to-air communications, microwave
communications, broadband communications and telemetry tracking. The Company
sells custom amplifiers and related products to these segments.

     The markets in which the Company and its customers compete are
characterized by rapidly changing technology, evolving industry standards and
continuous improvements in products and services. The Company's future success
depends on its ability to develop in a timely manner new products that compete
effectively on the basis of price and performance and that adequately address
customer requirements. No assurance can be given that the Company's product
development efforts will be successful or that its new products will achieve
customer acceptance.


PRODUCTS

     The Company designs and sells multicarrier transmit amplifiers, low noise
receive amplifiers, and related products for the cellular and PCS communication
markets, as well as to the wireless telephony and satellite communications
segments of the wireless communications industry. The Company also provides
catalog and custom amplifiers to OEMs and to other customers in the
communications market in general.

     Wireless Multicarrier Amplifiers. Utilizing its proprietary technology, the
Company has developed a series of multicarrier (microcell) amplifiers for
cellular applications. These products feature transmitting power levels which
the Company believes rank among the industry's highest, while at the same time
maintaining low levels of spurious output and distortion. The Company's
Microcell 40, Microcell 80 and Microcell 140 products offer a composite power of
40 Watts, 80 Watts and 140 Watts, respectively. As a result, the Microcell 40
supports up to 21 channels at 1.9 Watts per channel, the Microcell 80 supports
up to 21 channels at 3.8 Watts per channel and Microcell 140 supports up to 21
channels at 6.6 Watts per channel.

     Additionally, the Company offers multicarrier amplifiers for wireless
telephony and satellite communications applications.

     Wireless Receive Amplifiers. AML's receive amplifiers are designed
primarily for use by system operators and OEMs in the wireless infrastructure
equipment market. The Company's dual low noise amplifiers in its Microcell
products enhance the operation of the receiving section of the base station and
allows the cellular operator to balance its system.

     In addition, the Company's Link Balancer(R) receive amplifiers feature low
noise sensitivity and high out-of-band rejection characteristics. The Company
believes that the Link Balancer(R) amplifier improves the ability of unbalanced
macrocells to receive the weaker signals of level 2 power hand held phones more
efficiently and therefore to expand the footprint of such macrocells. The
Company has recently introduced a line of duplexed and non-duplexed PCS masthead
receive amplifiers and is in the process of introducing a PCS masthead
transmit/receive amplifier for PCS 1900 (GSM derived) applications.

     The Company believes that average selling prices and gross margins for its
products are declining as system operators face pressure to reduce costs as
competition intensifies. To counter these conditions, the Company believes that
it must successfully introduce and sell innovative new products on a timely
basis that incorporate innovative technologies and features that can be sold at
higher average selling prices and gross margins or at greater volume. There can
be no assurance, however, that the Company will be successful in developing or
marketing such products in such manner.

     Custom and Catalog Products. In addition to multicarrier transmit and
receive amplifiers, the Company also produces a variety of communication and
other products that meet the needs of particular markets. These products are

                                       6
<PAGE>
 
frequently designed and produced to customer specifications relating to noise,
power, frequency or spectral purity. The Company's catalogs list numerous
possible configurations for certain custom products and are used to promote
sales of its custom products to customers with special requirements.
AML's custom products include the following:

  .      Receiving Multicouplers. This product is used to split low level
         received signals into multiple outputs. For example, a receiving
         multicoupler may be used to allow one antenna to feed many receivers.
         This product can cover many communication frequency bands.

  .      High Dynamic Range, Low Noise Amplifiers. These amplifiers are used to
         amplify weak signals in the presence of high power signals with minimal
         cross interference. This product frequently is used as an antenna
         receive amplifier.

  .      Microwave Amplifiers. The Company markets microwave amplifiers with
         low noise and medium power characteristics with frequencies from 500
         MHz to 18 GHz to a variety of customers. The Company uses its microwave
         integrated circuit ("MIC") technology to manufacture these products.

  .      Telemetry Monopulse Tracking Components. These products are used by
         civilian and military testing and tracking facilities to retrieve air
         to ground test data via telemetry communication data links. The Company
         designs and manufactures amplifiers, comparators and scan converters
         for this specialized market.

     Product Warranties. The Company warrants new products against defects in
materials and workmanship, for a period of twelve months from the date of
shipment. To date, the Company has not experienced a material level of warranty
claims.


CUSTOMERS, SALES AND MARKETING

     Customers. The Company markets its products primarily in the United States
generally to wireless communication system operators and certain OEMs.

     Historically, the Company has derived a substantial percentage of its net
sales from single customers during certain fiscal periods and until fiscal 1995
the Company derived substantially all of its net sales from its custom
communication products. However, the Company has become less dependent on custom
products as the percentage of its net sales derived from sales of cellular and
wireless telephony products has increased. Set forth below is information
pertaining to the Company in its markets.

              .    Cellular and Wireless Telephony. Beginning in late fiscal
         1995, the Company shifted its marketing efforts from custom
         communication products to cellular system applications. As a result,
         sales to the cellular industry accounted for approximately 5% of net
         sales in fiscal 1995, 50% of net sales in fiscal 1996 and 72% of net
         sales in fiscal 1997. Major customers for the Company's cellular
         products included AT&T Wireless, Bell South Mobility, Houston Cellular,
         BAMS Nynex and Ameritech. Management believes the sales of cellular
         products will account for a smaller percentage of overall sales in the
         foreseeable future. Net sales of wireless telephony products accounted
         for approximately 33% of net sales in fiscal 1995, 7% of net sales in
         fiscal 1996, and 10% of net sales in fiscal 1997. Interdigital
         Corporation is the primary customer for the Company's wireless
         telephony products.

              .    PCS. During fiscal 1997, the Company introduced a new line of
         products for the PCS marketplace. Customers for the Company's PCS
         products included AT&T Wireless. Sales of these products accounted for
         approximately 4% of net sales in fiscal 1997.

              .    Custom Communications and Other. Historically, the Company
         has derived a substantial portion of its net sales from sales of its
         custom products. Sales of these products accounted for 62%, 43% and 13%
         of net sales for fiscal 1995, 1996 and 1997, respectively. During
         fiscal 1995, sales to E-Systems accounted for approximately 14% of net
         sales. During fiscal 1996, sales to Cubic Defense Systems, Inc.
         accounted for approximately 18% of net sales. During fiscal 1997, no
         custom product customer accounted for more than 5% of net sales.

                                       7
<PAGE>
 
     International Sales. Sales of products outside the United States
represented approximately 14.8%, 3.4% and 5.3% of net sales during fiscal 1995,
1996 and 1997, respectively. The Company believes that cellular and PCS growth
worldwide is expanding at similar growth rates as in the United States.

     Sales and Marketing. The Company employs a direct sales approach focused on
providing its wireless industry customers with specific application solution to
satisfy their transmit and receive amplification needs. Sales of the Company's
products directly to system operators require close technical liaison with the
operators' engineers and frequent travel to customer's sites.
   
     The Company's executive officers are involved in all aspects of the
Company's relationship with its major system operator and OEM customers. In
addition, as of March 31, 1997 the Company employed a direct sales staff of five
employees. The Company has entered into technical sales representative
agreements for sales in the United States, Korea and Brazil.
   


COMPETITION

     The wireless communication equipment industry is highly competitive and the
cellular and PCS communications market is dominated by a small number of large
OEMs, such as AT&T, Ericsson, Lucent and Northern Telecom, which provide
complete infrastructure systems to system operators. In addressing the
requirements of the system operators, the Company competes on the basis of
product functionality, quality and reliability, technical performance,
time-to-market and delivery capability. The Company believes that overall it
competes favorably with respect to the foregoing elements.

     Merchant amplifier manufacturers, such as Powerwave Technologies, Inc.,
Spectrian Corporation and Microwave Power Devices, Inc., have developed products
which are directly competitive with the Company's products. If these products
are supplied to OEMs for incorporation in their systems, or the merchant
manufacturers shift their marketing focus from OEMs to system operators, it may
adversely impact the Company. Additionally, the OEM market which the Company
hopes to further penetrate is very competitive. A substantial portion of the
present worldwide production of amplifiers is captive within the internal
manufacturing operations of a small number of wireless infrastructure OEMs and
that these amplifiers are offered for sale as part of their wireless systems.
There are no assurances that the Company's efforts to penetrate the OEM market
will be any more successful than its historical results.
   
     The Company has begun to experience significant price competition and
expects price competition in the sale of amplifiers to increase. No assurance
can be given that the Company's competitors will not develop new technologies or
enhancements to existing products or introduce new products that will offer
superior price or performance features. The Company expects its competitors to
offer new and existing products at prices necessary to gain or retain market
share. Several of the Company's competitors have substantial financial
resources, which may enable them to withstand sustained price competition or a
downturn in the pricing of its products, or otherwise, in the future.
Substantially all of the Company's competitors have, and potential future
competitors could have, substantially greater technical, marketing, distribution
and other resources than the Company and have, or could have, greater name
recognition and market acceptance of their products and technologies.


RESEARCH AND DEVELOPMENT

     The Company's research and development ("R&D") efforts are driven by the
short term demands of the market and potential future applications developed as
a result of the Company's interactions with wireless communication system
operators. The R&D activity is mainly focused in the wireless market and, to a
lesser extent, the market for custom products. R&D expenditures in fiscal 1995,
1996 and 1997 were approximately $487,000, $852,000 and $1,510,000,
respectively.

     Wireless Products. The Company engages in R&D programs focused on the
design of new products for the cellular, PCS, satellite and other markets,
improvement of existing product performance, cost reductions and improvements in
the manufacturability of existing products.

                                       8
<PAGE>
 
     The Company uses a CAD environment employing networked workstations to
model and test new circuits. This design environment, together with the
Company's experience in interference cancellation technology and modular product
architecture, allows the Company to rapidly define, develop and deliver new and
enhanced products and subsystems sought by its customers.

     Custom Products. The Company's R&D efforts with respect to custom products
focus primarily on developing new configurations of amplifiers and related
circuits. In addition, the Company intends to continue its R&D efforts for
certain custom low noise receive amplifiers and low noise automatic gain control
amplifiers for other portions of the wireless communication market.


PATENTS, PROPRIETARY TECHNOLOGY AND OTHER INTELLECTUAL PROPERTY

     The Company's ability to compete successfully and achieve future revenue
growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing upon the rights of others. The Company
has a policy of seeking patents, when appropriate, on inventions resulting from
its ongoing research and development and manufacturing activities. The Company
has been awarded two United States patents and has one United States patent
application pending. There can be no assurance that the Company's pending patent
application will be allowed or issued or that issued or pending patents will not
be challenged or circumvented by competitors.

     Notwithstanding the Company's active pursuit of patent protection, the
Company believes that the success of its business depends more on the collective
value of its patents, specifications and CAD design, technical process and
employee expertise. The Company has a policy to enter into confidentiality and
non-disclosure agreements with its employees and to limit access to and
distribution of its proprietary technology. Although there are no pending
lawsuits against the Company or unresolved notices that the Company is
infringing intellectual property rights of others, there can be no assurance
that litigation or infringement claims will not occur in the future.
   
     The Company owns Federal registrations with respect to the marks Balanced
Link(R), Link Balancer(R) and Repeat-A-Cell(R), and has applied for Federal
trademark protection for the mark PowerTop(TM).
   


GOVERNMENT REGULATION

     Radio frequency transmissions and emissions, and certain equipment used in
connection therewith, are regulated in the United States, Canada and
internationally. Regulatory approvals generally must be obtained by the Company
in connection with the manufacture and sale of its products, and by the
Company's customers to operate the Company's products. There can be no assurance
that the FCC will not adopt more stringent regulations for the communications
industry. If such regulations are adopted, the Company, the OEMs and the
wireless system operators may be required to alter the manner in which radio
signals are transmitted or otherwise to alter the equipment transmitting such
signals, which could materially and adversely affect the Company's products and
markets. The enactment by federal, state, local or international governments of
new laws or regulations, or a change in the interpretation of existing laws or
regulations, could affect the market for the Company's products. Recent
deregulation of international communications industries, along with recent RF
spectrum allocations made by the FCC, have increased the potential demand for
the Company's products by providing users of those products with opportunities
to establish new wireless personal communications services. However, there can
be no assurance that the trend toward deregulation and current regulatory
developments favorable to the promotion of new and expanded personal
communications services will continue or that other future regulatory changes
will have a positive impact on the Company. The increasing demand for wireless
communications has exerted pressure on regulatory bodies worldwide to adopt new
standards for such products, generally following extensive investigation of and
deliberation over competing technologies. The delays inherent in this
governmental approval process may cause the cancellation, postponement or
rescheduling of the installation of communications systems by the Company's
customers.

                                       9
<PAGE>
 
EMPLOYEES

     As of March 31, 1997, the Company had 99 full-time employees, including 23
in research and development; 59 in manufacturing, production engineering and
quality assurance; eight in administration; and nine in sales and marketing and
customer support. The Company believes that the success of its business depends,
in part, on its ability to attract and retain qualified personnel, particularly
qualified scientific, technical and key management personnel. The Company
believes its relationships with its employees are good.


ENVIRONMENTAL REGULATIONS

     The Company is subject to federal, state and local governmental regulations
relating to the storage, discharge, handling, emission, generation, manufacture
and disposal of toxic or other hazardous substances used to manufacture the
Company's products. The Company believes that it is currently in compliance in
all material respects with such regulations. Failure to comply with current or
future regulations could result in the imposition of substantial fines on the
Company, suspension of production, alteration of its manufacturing processes,
cessation of operations or other actions which could materially and adversely
affect the Company's business, financial condition and results of operations.



ITEM 2.   DESCRIPTION OF PROPERTY

     The Company's administrative, engineering and manufacturing facilities are
located in a 25,000 square foot leased building in Camarillo, California. The
Company's lease for this space expires in April 2003. Additionally, the Company
believes that its current facilities provide adequate expansion capabilities for
its opportunities.



ITEM 3.   LEGAL PROCEEDINGS

     The Company may be subject, from time to time, to various legal proceedings
relating to claims arising out of its operations in the ordinary course of its
business. The Company currently is not party to any legal proceedings, the
adverse outcome of which, individually or in the aggregate, management believes
would have a material adverse effect on the business, financial condition or
results of operations of the Company.



ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

                                       10
<PAGE>
 
                                    PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
            MATTERS

     The Company's common stock trades on the NASDAQ National Market under the
symbol "AMLJ." The table below sets forth the high and low closing sales prices
for the Company's common stock on the NASDAQ National Market for the periods
indicated.
<TABLE>
<CAPTION>

                                                             PRICE RANGE OF COMMON STOCK /(1)/
                                                                HIGH                LOW
                                                                ----                ---
<S>                                                             <C>                 <C>  
December 18, 1995 /(2)/ through December 31, 1995               $8.19               $6.00

Quarter ended March 31, 1996                                   $11.42               $6.00

Quarter ended June 30, 1996                                    $22.17              $10.59

Quarter ended September 30, 1996                               $20.50              $10.25

Quarter ended December 31, 1996                                $17.00              $12.50

Quarter ended March 31, 1997                                   $14.00               $3.50
</TABLE>

(1)  Adjusted to give retroactive effect to a 3:2 stock split paid on June 28,
     1996 to holders of record on June 5, 1996.

(2)  Effective date of the Company's initial public offering.

At June 23, 1997 there were approximately 62 holders of record of the Company's
common stock.

     The Company has not paid cash dividends and does not anticipate paying cash
dividends in the foreseeable future. The Company expects to utilize future
earnings to finance future growth. The actual amount of any dividends paid would
be subject to the discretion of the Board of Directors of the Company and would
depend on the Company's operations, financial and business requirements,
conformity with bank covenants and other factors.

                                       11
<PAGE>
 
ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

     The following table summarizes the Company's results of operations both in
dollars and as a percentage of net sales for the fiscal years ended March 31,
1996 and 1997.

<TABLE>
<CAPTION>

   
(IN THOUSANDS, EXCEPT PERCENTAGE           YEAR ENDED MARCH 31,
 DATA)                             ------------------------------------------
                                             1996                 1997
                                   --------------------   -------------------
<S>                                 <C>           <C>     <C>           <C>   
Net sales .......................   $  6,988      100.0%  $ 14,091      100.0%
Cost of goods sold ..............      3,181       45.5      6,892       48.9
                                    --------    -------   --------    -------
Gross profit ....................      3,807       54.5      7,199       51.1
Operating expenses:
   Selling, general and
     administrative .............      1,048       15.0      2,534       18.0
   Research and
     development ................        852       12.2      1,510       10.7
                                    --------    -------   --------    -------
Operating income ................      1,907       27.3      3,155       22.4
Other income, net ...............        (13)       (.2)      (208)      (1.5)
                                    --------    -------   --------    -------
Income before provision for taxes      1,920       27.5      3,363       23.9
Provision for taxes .............        723       10.4      1,237        8.8
                                    --------    -------   --------    -------
Net income ......................   $  1,197       17.1%  $  2,126       15.1%
                                    ========    =======   ========    =======
</TABLE>

     The table below sets forth information with respect to the Company's net
sales derived from customers in the Company's markets during the periods
indicated.



                          NET SALES BY MARKET CATEGORY
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                   YEAR ENDED
                                                                     MARCH 31,
                                                               -------------------
          MARKETS                                                1996       1997
          -------                                              --------  ---------
<S>                                                            <C>       <C> 
Cellular and Wireless Telephony.............................    $4,011    $11,500
PCS.........................................................        --        550
Custom and Other............................................     2,977      2,041
                                                                ------    -------
     Total Net Sales........................................    $6,988    $14,091
                                                                ======    =======
</TABLE>




FISCAL YEARS ENDED MARCH 31, 1997 AND 1996

   
     Net sales. Net sales for fiscal 1997 were $14.1 million compared to $7.0
million in 1996, a 102% increase. The increase in sales is largely attributable
to the significant increase in sales volume of the Company's cellular and
wireless telephony amplifiers. Although the cellular segment of the Company's
business experienced a significant increase year over year, its growth rate
began to retreat in the third quarter of fiscal 1997 and significantly declined
in the fourth quarter of fiscal 1997. The decline in the cellular amplifier
product line is a direct result of the following factors: 1) Original Equipment
Manufacturers ("OEMs") have developed improved base stations enabling the
operator to achieve cost effective performance without having to upgrade to the
Company's amplifier. 2) Macrocell 

                                       12
<PAGE>
 
base stations are being developed and sold at substantially lower prices than
ever before, thereby slowing the sales of microcell base stations in this
country. The Company's multicarrier amplifier is currently only used to perform
with the microcell base station; consequently, AML has been negatively impacted
by this. 3) The industry focus has shifted to the Personal Communications
Services ("PCS") market both in financial resources and in human investment thus
slowing further build-out of the cellular infrastructure.

     Custom and other sales were $2.0 million in fiscal 1997 compared to $3.0
million in the prior year, a decrease of $1.0 million, or 33%. The decrease in
sales is a result of management's continued effort to focus its attention and
resources on cellular and PCS communications opportunities thereby reducing its
sales and marketing efforts in the custom and other sales segment of its
business.

     Gross profit. Gross profit for fiscal 1997 was $7.2 million, or 51.1% of
net sales, compared to $3.8 million, or 54.5% of net sales, in fiscal 1996. The
percentage decrease is a result of the revenue shortfall that occurred in the
fourth quarter of fiscal 1997 which impeded the Company's ability to efficiently
absorb its labor and overhead expenses for that quarter. Also contributing to
the decrease was the Company's extensive effort throughout the year to implement
the proper infrastructure to sustain the Company's manufacturing levels at which
the Company operates. The higher gross margin for fiscal 1996 was also due to
lower than anticipated costs incurred in connection with a contract the Company
entered into in that fiscal year which generated approximately 18% of the
Company's fiscal 1996 sales. The Company believes the average selling prices and
gross margins for its products are likely to decline as cellular operators face
pressures to reduce costs and as competition intensifies among suppliers of
equipment to the cellular operators. If competition or other market factors
cause a shift in the Company's pricing or product mix, gross profit as a
percentage of net sales may not be as favorable in the future.

     Selling, general and administrative costs. Selling, general and
administrative costs for fiscal 1997 were $2.5 million, or 18% of net sales,
compared to $1.0 million, or 15% of net sales, for fiscal 1996. Both the
absolute dollar and percentage differences related principally to additional
sales commissions, marketing and administrative headcount and its related
expenses, and expanded information systems necessary to support a higher sales
volume. The Company believes further investment in marketing and administration
will be necessary to accommodate the intensified competitive nature of the
industry.

     Research and development costs. Research and development costs for fiscal
1997 were $1.5 million, or 10.7% of net sales, compared to $852,000, or 12.2% of
net sales, for the corresponding period in 1996. The absolute dollar increase
was due primarily to the employment of additional technical staff and increased
material costs required to design and develop new products for cellular, PCS and
paging communications markets. The Company's research and development effort for
fiscal 1997 resulted in the introduction of new cellular, wireless and PCS
products.

     Other income, net. Other income for fiscal 1997 increased to $208,000
compared to $13,000 for fiscal 1996. The increase was due to interest income
generated from cash invested. The cash balances are a function of the net
proceeds from the Company's public offering in December 1995 and from positive
cash flow generated as a result of earnings offset by capital expenditures and
changes in working capital.

     Provision for taxes. Provision for taxes for fiscal 1997 was approximately
36.8% of pretax income, less than the approximate statutory rate of 40%, due
mainly to research and development credits and tax exempt interest income which
reduce taxes payable.

     Net income. For the reasons set forth above, the Company generated a
net income for fiscal 1997 of $2.1 million, or 15.1% of net sales compared to 
$1.2 million, or 17.1% of net sales in fiscal 1996.


LIQUIDITY AND CAPITAL RESOURCES

   
     Historically, the Company financed its operations primarily from
internally generated funds and, to a lesser extent, loans from stockholders and
capital lease obligations. In December 1995, the Company completed its initial
public offering of 1,725,000 shares of common stock (including the exercise of
the underwriters' over allotment option), raising net proceeds of approximately
$7.7 million. Of such net proceeds, $425,000 was used to repay loans from
certain stockholders and the remainder has been used to expand manufacturing
capability through the leasing 

                                       13
<PAGE>
 
and outfitting of substantially larger facilities, the acquisition of equipment
sufficient to produce higher product quantities and the employment and training
of additional employees capable of expanding production and sales. The net
proceeds of the initial public offering are also being used to maintain
increased inventory and working capital balances to support higher operating
levels.

         In August 1996 the Company renegotiated its revolving bank line of
credit. The new agreement is comprised of two separate credit facilities. The
initial facility is a $1,250,000 revolving line of credit, which bears interest
at the bank's reference rate (8.5% at March 31, 1997) plus 0.75%. The second
facility is a $500,000 non-revolving line of credit with term repayment options
which may be used to finance up to 80% of the purchase price of equipment used
in the Company's business. Repayment of borrowings under this facility are in 47
equal monthly installments starting on October 1, 1997, with interest at the
bank's reference rate plus 1.00%. Both facilities are secured by substantially
all of the Company's assets and expire on September 1, 1997. As of March 31,
1997, there were no borrowings outstanding under either facility.

         At March 31, 1996 the Company had $4.7 million in cash, and $3.3
million in short-term tax exempt marketable securities. The Company's operating
activities used cash of approximately $1,306,000 in fiscal 1997 primarily as a
result of income from operations offset by increases in investment in marketable
securities and inventory. The Company's capital expenditures of $1.5 million for
fiscal 1997 were primarily for manufacturing test equipment, leasehold
improvements for new facilities and information system improvements. In June
1996 the Company accelerated payments of capital lease obligations totaling
$266,000 in addition to the scheduled payments.

         The Company believes that the net proceeds from the initial public
offering, together with cash provided by operations and available under the bank
line of credit, will be sufficient to finance the Company for at least the next
12 months. Inflation has not had a significant effect to date on the Company's
results of operations.

   
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

         Future operating results may be impacted by a number of factors that
could cause actual results to differ materially from those stated herein, which
reflect management's current expectations. These factors include industry
specific factors (including the reliance upon continued growth of the wireless
communications market, significant competition in the communications
infrastructure equipment industry characterized by rapid technological change,
new product development, product obsolescence, and significant price erosion
over the life of a product), the Company's ability to timely develop and produce
commercially viable products at competitive prices, the ability of the Company's
products to operate and be compatible with various OEM base station equipment,
the Company's ability to produce products which meet the quality standards of
both existing and potential new customers, the Company's ability to accurately
anticipate customer demand, the Company's ability to manage expense levels, the
availability and cost of components, the Company's ability to finance its
activities and maintain its financial liquidity and worldwide economic and
political conditions.

         The Company has begun to experience significant price competition and
expects price competition in the sale of amplifiers to increase. No assurance
can be given that the Company's competitors will not develop new technologies or
enhancements to existing products or introduce new products that will offer
superior price or performance features. The Company expects its competitors to
offer new and existing products at prices necessary to gain or retain market
share. Several of the Company's competitors have substantial financial
resources, which may enable them to withstand sustained price competition or a
downturn in the pricing of its products, or otherwise, in the future.
Substantially all of the Company's competitors have, and potential future
competitors could have, substantially greater technical, marketing, distribution
and other resources than the Company and have, or could have, greater name
recognition and market acceptance of their products and technologies.

         The Company currently sells a majority of its product into the operator
channel to market. As a result, the Company receives periodic order forecasts
from its major customers who have no obligation to purchase the forecasted
amounts. Nonetheless, the Company maintains significant work in process and raw
materials inventory as well as increased levels of technical

                                       14
<PAGE>
 
production staff to meet order forecasts and/or management's projections. To the
extent its major customers purchase less than the forecasted amounts, the
Company will have higher levels of inventory than otherwise needed, increasing
the risk of obsolescence and the Company will have increased levels of
production staff to support such forecasted orders. Such higher levels of
inventory and increased employee levels could reduce the Company's liquidity and
could have a material adverse effect on the Company's business, results of
operation and financial condition.

         The markets in which the Company and its customers compete are
characterized by rapidly changing technology, evolving industry standards and
communications protocols and continuous improvements in products and services.
The Company's future success depends on its ability to enhance its current
products and to develop and introduce in a timely manner new products that keep
pace with technological developments, industry standards and communications
protocols, compete effectively on the basis of price, performance and quality,
adequately address OEM customer and end-user customer requirements and achieve
market acceptance. The Company believes that to remain competitive in the future
it will need to continue to develop new products, which will require the
investment of significant financial resources in new product development. In
this regard, in anticipation of the deployment of PCS, the Company has developed
a line of amplifiers for PCS networks. There can be no assurance that the
Company's PCS-based products will achieve market acceptance, or that the Company
will manufacture such products at competitive prices in sufficient volumes. In
the event the Company's PCS-based products are not timely developed or do not
gain market acceptance, the Company's business, results of operations and
financial condition could be materially adversely affected.

                                       15
<PAGE>
 
ITEM 7.   FINANCIAL STATEMENTS


                          INDEX TO FINANCIAL STATEMENTS


<TABLE>

                                                                                                              PAGE
                                                                                                              ----
<S>                                                                                                            <C>
Report of Independent Public Accountants...................................................................    17

Balance Sheet as of March 31, 1997.........................................................................    18

Statements of Income for each of the two years ended March 31, 1997........................................    19

Statements of Stockholders' Equity for each of the two years ended March 31, 1997..........................    20

Statements of Cash Flows for each of the two years ended March 31, 1997....................................    21

Notes to Financial Statements..............................................................................    22
</TABLE>

                                       16
<PAGE>
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To AML Communications, Inc.:

     We have audited the accompanying balance sheet of AML Communications, Inc.
(a Delaware corporation) as of March 31, 1997, and the related statements of
income, stockholders' equity and cash flows for each of the two years ended
March 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AML Communications, Inc. as
of March 31, 1997, and the results of its operations and its cash flows for each
of the two years ended March 31, 1997, in conformity with generally accepted
accounting principles.


                                                           ARTHUR ANDERSEN LLP

Los Angeles, California
May 5, 1997

                                       17
<PAGE>
 
                            AML COMMUNICATIONS, INC.

                                  BALANCE SHEET

                              AS OF MARCH 31, 1997

<TABLE>
<CAPTION>

ASSETS
------

Current Assets:

<S>                                                                             <C>         
     Cash and cash equivalents ..............................................    $ 4,766,000
     Marketable securities ..................................................      3,259,000

     Accounts receivable, net of allowance for doubtful accounts of $297,000.      1,910,000
     Inventories ............................................................      1,961,000
     Other current assets ...................................................        203,000
                                                                                 -----------
          Total current assets ..............................................     12,099,000
                                                                                 -----------


Property and Equipment, at cost: ............................................      2,875,000
     Less--Accumulated depreciation and amortization ........................       (912,000)
                                                                                 -----------
                                                                                   1,963,000

Deferred Taxes ..............................................................        332,000
Other Assets ................................................................        149,000
                                                                                 -----------
                                                                                 $14,543,000
                                                                                 ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current Liabilities:
     Accounts payable .......................................................    $   857,000
     Current portion of capital lease obligations ...........................         40,000
     Accrued expenses:
        Accrued payroll and payroll related expenses ........................        453,000
        Accrued commissions .................................................         78,000
        Other accrued expenses ..............................................         72,000
     Income taxes payable ...................................................        244,000
                                                                                 -----------
               Total current liabilities ....................................      1,744,000
                                                                                 -----------

Capital Lease Obligations, net of current portion ...........................         62,000
                                                                                 -----------
Commitments and Contingencies
Stockholders' Equity:
     Preferred stock, $.01 par value:
          1,000,000 shares authorized; no shares issued or
          outstanding .......................................................             --
     Common stock, $.01 par value:
          15,000,000 shares authorized;
          6,082,190 shares issued and outstanding ...........................         61,000
     Capital in excess of par value .........................................      9,048,000
     Retained earnings ......................................................      3,628,000
                                                                                 -----------
             Total stockholders' equity .....................................     12,737,000
                                                                                 -----------
                                                                                 $14,543,000
                                                                                 ===========
</TABLE>

       The accompanying notes are an integral part of this balance sheet.

                                       18
<PAGE>
 
                            AML COMMUNICATIONS, INC.


                              STATEMENTS OF INCOME

                   FOR THE YEARS ENDED MARCH 31, 1996 AND 1997
<TABLE>
<CAPTION>



                                                      YEAR ENDED
                                             -------------------------
                                               MARCH 31,     MARCH 31,
                                                 1996          1997
                                             ------------   ---------
<S>                                           <C>          <C>        
Net Sales ..............................     $6,988,000     $14,091,000
Cost of Goods Sold .....................      3,181,000       6,892,000
                                             ----------     -----------
          Gross profit .................      3,807,000       7,199,000
                                             ----------     -----------
Operating Expenses:
     Selling, general and 
      administrative....................      1,048,000       2,534,000
     Research and development ..........        852,000       1,510,000
                                             ----------     -----------
                                              1,900,000       4,044,000
                                             ----------     -----------
          Operating income .............      1,907,000       3,155,000

Other (Income) Expense:
     Interest income ...................        (93,000)       (224,000)
     Interest expense ..................         82,000          28,000
     Other .............................         (2,000)        (12,000)
                                             ----------     -----------
                                                (13,000)       (208,000)
                                             ----------     -----------
          Income before provision
             for income taxes ..........      1,920,000       3,363,000

Provision for Income Taxes .............        723,000       1,237,000   
                                             ----------     -----------
          Net income ...................     $1,197,000     $ 2,126,000
                                             ==========     ===========
Earnings per Common Stock Share ........     $     0.23     $      0.33
                                             ==========     ===========
Weighted Average Number of Shares of
   Common Stock Outstanding ............      5,160,000       6,519,000
                                             ==========     ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       19
<PAGE>
 
                            AML COMMUNICATIONS, INC.


                       STATEMENTS OF STOCKHOLDERS' EQUITY

   
                   FOR THE YEARS ENDED MARCH 31, 1996 AND 1997
<TABLE>
<CAPTION>

                                                                 COMMON STOCK         CAPITAL IN                              
                                                               ----------------        EXCESS OF    RETAINED                  
                                                             STOCK       AMOUNT        PAR VALUE    EARNINGS        TOTAL     
                                                           ---------   -----------     ---------    --------     -----------  
<S>                                                        <C>         <C>           <C>           <C>          <C>          
Balance, March 31, 1995 ...............................    3,902,743       $39,000    $  123,000    $  305,000   $   467,000 
                                                                                                                              
     Sale of common stock .............................    1,725,000        17,000     7,726,000            --     7,743,000  
     Exercise of stock options ........................       13,707         1,000         1,000            --         2,000  
     Net income .......................................           --            --            --     1,197,000     1,197,000  
                                                           ---------       -------    ----------    ----------   -----------  
Balance, March 31, 1996 ...............................    5,641,450        57,000     7,850,000     1,502,000     9,409,000  
                                                                                                                              
                                                                                                                              
     Exercise of stock options.........................      440,740         4,000       345,000            --       349,000  
     Tax benefit from exercise of stock options........           --            --       853,000            --       853,000  
     Net income .......................................           --            --            --     2,126,000     2,126,000  
                                                           ---------       -------    ----------    ----------   -----------  
Balance, March 31, 1997 ...............................    6,082,190       $61,000    $9,048,000    $3,628,000   $12,737,000  
                                                           =========       =======    ==========    ==========   ===========   
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       20
<PAGE>
 
                            AML COMMUNICATIONS, INC.


                            STATEMENTS OF CASH FLOWS

   
                   FOR THE YEARS ENDED MARCH 31, 1996 AND 1997
   
<TABLE> 
<CAPTION> 
                                                                                    YEAR ENDED        
                                                                            ---------------------------
                                                                               MARCH 31,     MARCH 31, 
                                                                                 1996          1997   
                                                                             -----------   ------------
<S>                                                                          <C>           <C>        
Cash Flows from Operating Activities:
     Net income ..........................................................   $ 1,197,000    $ 2,126,000
     Adjustments to reconcile net income to net cash provided by (used in)
        operating activities:
          Depreciation and amortization ..................................        91,000        499,000
          Provision for losses on accounts receivable ....................       105,000         13,000
          Changes in assets and liabilities:
               Decrease (increase) in:
                    Marketable securities ................................            --     (3,259,000)
                    Accounts receivable ..................................    (1,196,000)      (374,000)
                    Inventories ..........................................      (874,000)      (657,000)
                    Deferred tax asset ...................................       (84,000)      (225,000)
                    Other assets .........................................      (103,000)      (228,000)
               Increase (decrease) in:
                    Accounts payable .....................................       482,000        257,000
                    Accrued expenses .....................................       172,000        155,000
                    Income taxes payable .................................       685,000        387,000
                                                                             -----------    -----------
                    Net cash provided by (used in)
                      operating activities ...............................       475,000     (1,306,000)
                                                                             -----------    -----------
Cash Flows from Investing Activities:
     Facility held for resale ............................................    (1,300,000)            -- 
     Proceeds from disposition of facility held for resale ...............            --      1,300,000
     Purchases of property and equipment .................................      (359,000)    (1,513,000)
                                                                             -----------    -----------
                    Net cash used in investing activities ................    (1,659,000)      (213,000)
                                                                             -----------    -----------
Cash Flows from Financing Activities:
     Sale of common stock ................................................     7,743,000             -- 
     Proceeds from exercise of stock options .............................         2,000        349,000
     Principal payments on notes payable to
        stockholders and capital lease obligations .......................      (506,000)      (376,000)
                                                                             -----------    -----------
                    Net cash provided by (used in)
                      financing activities ...............................     7,239,000        (27,000)
                                                                             -----------    -----------
Net Increase (Decrease) in Cash and Cash Equivalents .....................     6,055,000     (1,546,000)
Cash and Cash Equivalents, beginning of year .............................       257,000      6,312,000
                                                                             -----------    -----------
Cash and Cash Equivalents, end of year ...................................   $ 6,312,000    $ 4,766,000
                                                                             ===========    ===========
Supplemental disclosures of cash flow information:
     Cash paid during the period for:
              Interest ...................................................   $    86,000    $    28,000
                                                                             ===========    ===========
              Income taxes ...............................................   $   257,000    $ 1,075,000
                                                                             ===========    ===========
     Non cash transactions:
              Tax benefit related to exercise of employee
                  stock options ..........................................   $        --    $   853,000
                                                                             ===========    ===========
              Debt incurred to purchase property and
                  equipment ..............................................   $   305,000    $        -- 
                                                                             ===========    ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       21
<PAGE>
 
                            AML COMMUNICATIONS, INC.
                          NOTES TO FINANCIAL STATEMENTS

                                 MARCH 31, 1997

1.    LINE OF BUSINESS

     AML Communications, Inc. (the "Company") designs and manufactures
multi-carrier amplifiers, masthead amplifiers, repeaters and related products
for the cellular, personal communication services ("PCS"), paging and other
communication markets.

     The Company was incorporated in California as Advanced Milliwave
Laboratories, Inc. In connection with its public offering of common stock in
December, 1995, the Company reincorporated in Delaware, and changed its name to
AML Communications, Inc.

     In December 1995, the Company completed its initial public offering of
approximately 1.7 million shares of common stock (after giving retroactive
effect to a 3:2 stock split and the exercise of the underwriters' over allotment
option) at a price to the public of $5.33 per common share. Of the net proceeds,
approximately $425,000 was used to repay loans from certain stockholders of the
Company with the remainder to be used to finance expenditures in connection with
the move to a larger facility, increased working capital requirements and
general corporate purposes. The Company also sold the underwriters five-year
warrants to purchase an aggregate of 150,000 shares of the Company's common
stock at $6.40 per common share. As of March 31, 1997, all 150,000 warrants are
outstanding and currently exercisable.

     In January, 1996 the Company sold an additional 225,000 shares of common
stock under the same terms upon exercise of an over-allotment option granted to
the underwriters of the public offering.


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Concentration of Cash

   
     The Company considers all liquid investments with an original maturity of
three months or less to be cash equivalents. As of March 31, 1997, the Company
had cash and cash equivalent balances totaling $4,666,000 in financial
institutions which were in excess of federally insured amounts.
   

     Credit Risk

     The Company performs ongoing credit evaluations of its customers' financial
conditions and generally does not require collateral on accounts receivable,
hence the accounts receivable are unsecured and the Company is at risk to the
extent such amounts become uncollectible. As of March 31, 1997 two customers
comprised 24% and 19% of accounts receivable, respectively.

     During fiscal 1996, the Company had sales to four customers which
represented 18%, 12%, 12% and 11% of net sales, respectively. During fiscal
1997, the Company had sales to four customers which represented 23%, 13%, 12%
and 11% of net sales, respectively.

   
     The Company's customers are comprised primarily of cellular service
providers and original equipment manufacturers ("OEMs"). Customers are located
primarily throughout the United States. The Company also had sales to customers
in Western Europe, Canada, Israel and Japan. During the fiscal years ended March
31, 1996 and March 31, 1997, international sales were $238,000 and $743,000,
respectively.
   

                                       22
<PAGE>
 
                            AML COMMUNICATIONS, INC.
                          NOTES TO FINANCIAL STATEMENTS

                                 MARCH 31, 1997


     Revenue Recognition

   
     The Company recognizes revenue from product sales at the time of shipment.
The following is a detail of net sales by category of market for each of the two
years indicated:
   

<TABLE>
<CAPTION>

                                                                   YEAR ENDED
                                                                    MARCH 31,
                                                             -------------------
          MARKETS                                                1996     1997
          -------                                            --------  ---------
<S>                                                            <C>       <C>    
Cellular and Wireless Telephony.............................    $4,011    $11,500
PCS.........................................................         -        550
Custom and Other............................................     2,977      2,041
                                                                ------    -------
     Total Net Sales........................................    $6,988    $14,091
                                                                ======    =======
</TABLE>


     Inventories

     Inventories include costs of materials, labor and manufacturing overhead
and are stated at the lower of cost (first-in, first-out) or market, and consist
of the following:
<TABLE> 
<CAPTION> 
                                          MARCH 31, 1997
                                          --------------
                  <S>                     <C>    
                  Raw materials.......     $1,502,000
                  Work in process.....        409,000
                  Finished goods......         50,000
                                           ----------
                                           $1,961,000
                                           ==========
</TABLE> 

     Depreciation and Amortization

     Property and equipment are being depreciated and amortized on the
straight-line basis over the following estimated useful lives:
<TABLE>
                 <S>                                          <C>
                  Machinery and equipment...................  3 to 5 years
                  Furniture and fixtures....................  5 years
                  Leasehold improvements....................  Life of lease
</TABLE> 
     The Company capitalizes expenditures that materially increase asset lives
and charges ordinary repairs and maintenance to operations as incurred. When
assets are sold or otherwise disposed of, the cost and related depreciation or
amortization are removed from the accounts and any resulting gain or loss is
included in other income (expense) in the accompanying statements of operations.

     Property and equipment consist of the following:
<TABLE>
<CAPTION>

                                                                MARCH 31, 1997
                                                                --------------
                  <S>                                              <C>       
                  Machinery and equipment...................       $2,239,000
                  Furniture and fixtures....................          120,000
                  Leasehold improvements....................          516,000
                                                                   ----------
                                                                   $2,875,000
                                                                   ==========
</TABLE>

                                       23
<PAGE>
 
                            AML COMMUNICATIONS, INC.
                          NOTES TO FINANCIAL STATEMENTS

                                 MARCH 31, 1997

     Warranty and Customer Support

     The Company warrants its products against defects in materials and
workmanship for a period of one year. A provision for estimated future warranty
and customer support is recorded when products are shipped. To date, warranty
and customer support costs have not been material.

     Earnings Per Share

     Earnings per common share for each of the two years in the period ended
March 31, 1997 are based on the weighted average number of common shares
outstanding plus the dilutive effect of common stock equivalents. For all
periods presented, per share information was computed pursuant to the rules of
the Securities and Exchange Commission (SEC), which require that common stock
issued by the Company during the twelve months immediately preceding the
Company's initial public offering plus the number of common shares issuable
pursuant to the grant of options issued during the same period, be included in
the calculation of the shares outstanding using the treasury stock method from
the beginning of all periods presented. The earnings per share calculations
reflect a 3:2 stock split paid June 28, 1996 to holders of record June 5, 1996.
Primary and fully dilutive earnings per share are the same for all periods
presented.

     Use of Estimate in Preparation of Financial Statements

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

     Accounting for Stock Option Based Compensation

     The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" (SFAS 123) in fiscal 1997. As allowed
by SFAS 123, the Company has elected to continue to measure compensation cost
under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB 25) and comply with the pro forma disclosure requirements of
the new standard.

     New Authoritative Pronouncements

     In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128) and
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure" (SFAS 129). SFAS 128 revises and simplifies the
computation for earnings per share and requires certain additional disclosures.
SFAS 129 requires additional disclosures regarding the Company's capital
structure. Both standards will be adopted in fiscal 1998. Management does not
expect the adoption of these standards to have a material effect on the
Company's financial position or results of operations.


3.    INDUSTRY RISK

     The wireless communications equipment industry is highly competitive and is
characterized by rapid technology change, new product development, product
obsolescence, evolving industry standards and substantial price erosion over the
life of a product. A substantial portion of the increase in net sales during the
years ended March 31, 1996 and 1997 relate to sales of a relatively new product
line (Microcell) and the Company's expansion into the cellular market. The
Company has a limited operating history in this market and, as such, there are
no assurances that the Company will be able to successfully develop, produce and
distribute in this market in the future.

                                       24
<PAGE>
 
                            AML COMMUNICATIONS, INC.
                          NOTES TO FINANCIAL STATEMENTS

                                 MARCH 31, 1997


4.   DEBT AND LEASE COMMITMENTS

     Bank Line of Credit

   
     In August 1996 the Company renegotiated its revolving bank line of credit. 
The new agreement is comprised of two separate credit facilities. The initial
facility is a $1,250,000 revolving line of credit, which bears interest at the
bank's reference rate (8.5% at March 31, 1997) plus 0.75%. The second facility
is a $500,000 non-revolving line of credit with term repayment options which may
be used to finance up to 80% of the purchase price of equipment used in the
Company's business. Repayment of borrowings under this facility are in 47 equal
monthly installments starting on October 1, 1997, with interest at the bank's
reference rate plus 1.00%. Both facilities are secured by substantially all of
the Company's assets and expire on September 1, 1997. As of March 31, 1997,
there were no borrowings outstanding under either facility.

     Capital and Operating Lease Obligations

     Included in property and equipment is approximately $187,000 of equipment
which is leased under noncancellable leases accounted for as capital leases
which expire at various dates through November 2000. The Company leases its
office space, manufacturing facility and certain equipment under long-term
operating leases expiring at various dates through April 2003. Total rent
expense under these operating leases was approximately $63,000 and $148,000
during the years ended March 31, 1996 and 1997, respectively.

     Total minimum lease payments under the above leases are as follows:
<TABLE>
<CAPTION>

                                                             
                                                              Capital       Operating
                                                               Leases         Leases          Total
                                                             ---------     -----------      ----------
     <S>                                                     <C>           <C>              <C>       
     Year ending March 31,
         1998..........................................       $ 48,000       $ 169,000      $  217,000
         1999..........................................         29,000         167,000         196,000
         2000..........................................         23,000         156,000         179,000
         2001..........................................         17,000         153,000         170,000
         2002..........................................            --          155,000         155,000
         Thereafter....................................            --          171,000         171,000
                                                              --------       ---------      ----------
                                                               117,000       $ 971,000      $1,088,000
                                                                             =========      ==========
     Less--Amount representing interest
         (10.5% to 13.7%)..............................        (15,000)
                                                              --------
     Present value of minimum lease payments...........        102,000
     Less--Current portion..............................       (40,000)
                                                              --------
                                                              $ 62,000
                                                              ========
</TABLE>


5.   INCOME TAXES

     The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109). Under SFAS 109, deferred
income tax assets or liabilities are computed based on the temporary difference
between the financial statement and income tax bases of assets and liabilities
using the enacted marginal income tax rate in effect for the year in which the
differences are expected to reverse. Deferred income tax expenses or credits are
based on the changes in the deferred income tax assets or liabilities from
period to period.

                                       25
<PAGE>
 
                            AML COMMUNICATIONS, INC.
                          NOTES TO FINANCIAL STATEMENTS

                                 MARCH 31, 1997

     The provision for income taxes for each of the years ended March 31, 1996
and 1997 consists of the following:

<TABLE>
<CAPTION>
                                                                  
                                                      YEAR ENDED
                                          -----------------------------------
                                            MARCH 31, 1996     MARCH 31, 1997
                                          ----------------  ----------------- 
<S>                                       <C>                 <C>          
      Current:
           Federal......................      $686,000           $1,243,000
           State........................       121,000              219,000     
                                              --------            ---------  
                                               807,000            1,462,000  
                                              --------           ----------  
                                                                              
                                               
      Deferred..........................       (84,000)            (225,000) 
                                              --------           ----------  
      Provision for income taxes........      $723,000           $1,237,000  
                                              ========           ==========  
</TABLE>

     Differences between the provision for income taxes and income taxes at the
statutory federal income tax rate for years ended March 31, 1996 and 1997 are as
follows:
<TABLE>
<CAPTION>
                                                     MARCH 31,                     MARCH 31,
                                                       1996                         1997
                                               --------------------------    -----------------------
                                                AMOUNT          PERCENT        AMOUNT       PERCENT
                                               -----------     ----------    ---------     ---------
<S>                                             <C>            <C>           <C>           <C>
Income tax at statutory federal rate....        $653,000            34%      $1,143,000        34%
State income taxes, net of federal               
income tax..............................         115,000             6          202,000         6
Effect of permanent differences.........         (15,000)           (1)         (57,000)       (2)
Research and development credit.........         (68,000)           (3)         (38,000)       (1)
Other...................................          38,000             2          (13,000)       --
                                                --------          ----       ----------      ----
                                                $723,000            38%      $1,237,000        37%
                                                ========          ====       ==========      ==== 
</TABLE>

     Under SFAS 109, deferred tax assets may be recognized for temporary
differences that will result in deductible amounts in future periods and for
loss carryforwards. A valuation allowance is recognized if, based on the weight
of available evidence, it is more likely than not that some portion or all of
the deferred tax asset will not be realized.

     A detail of the Company's deferred tax asset as of March 31, 1997 follows.
Based on its limited operating history and that there are no assurances that the
Company will continue to be profitable in future periods, a valuation allowance
has been recognized for a portion of the deferred tax asset.
<TABLE>
<CAPTION>

                                                         MARCH 31, 1997
                                                         --------------
<S>                                                       <C>       
         Inventory reserves.............................  $  175,000
         Allowance for doubtful accounts................     114,000
         Accrued vacation...............................      47,000
         Accrued bonus..................................      86,000
         Accrued warranty and customer support..........      11,000
         Accrued 401(k) contribution....................       5,000
         Other..........................................      31,000
         Depreciation...................................     (48,000)
                                                           --------- 
                                                             421,000
         Valuation allowance............................     (89,000)
                                                           --------- 
                                                           $ 332,000
                                                           =========
</TABLE>

                                       26
<PAGE>
 
                            AML COMMUNICATIONS, INC.
                          NOTES TO FINANCIAL STATEMENTS

                                 MARCH 31, 1997

6.   STOCKHOLDERS' EQUITY

     Stock Option Plan

     The Company's Stock Incentive Plan provides for the granting of
non-qualified and incentive stock options to purchase up to 1,096,586 shares of
common stock for periods not to exceed 10 years. Options typically vest 25%
after one year from the date of grant with remaining options vesting at a rate
of 25% per year thereafter. Options may be granted to employees, officers,
directors and consultants. Activity under this plan is as follows:
<TABLE>
<CAPTION>
                                                                                                    WEIGHTED
                                                                                     NUMBER OF       AVERAGE
                                                                                       SHARES     OPTION PRICE
                                                                                       ------     ------------

<S>                                                                                  <C>             <C>  
Outstanding at March 31, 1995...................................................      652,286         $ .34
Granted  .......................................................................      225,923          2.74
Exercised.......................................................................       (9,138)          .16
Canceled .......................................................................       (1,828)          .52
                                                                                     ---------        -----

Outstanding at March 31, 1996...................................................      867,243           .96
Granted  .......................................................................       74,577         15.43
Exercised.......................................................................     (440,740)          .81
Canceled .......................................................................      (70,753)         1.64
                                                                                     ---------        -----

Outstanding at March 31, 1997...................................................      430,327         $3.50
                                                                                     =========        =====
</TABLE>


     The weighted average theoretical value for options granted during the year
was $1.44 and $11.65 for fiscal 1996 and 1997, respectively.

     The number of common stock options available for grant as of each fiscal
year were 229,343 for 1996 and 225,518 for 1997.

     Options outstanding at March 31, 1997 and related weighted average price
and life information is as follows:
<TABLE>
<CAPTION>


                                             WEIGHTED             TOTAL
                           TOTAL             AVERAGE            WEIGHTED                               WEIGHTED
    RANGE OF              OPTIONS         REMAINING LIFE         AVERAGE            OPTIONS            AVERAGE
 EXERCISE PRICES        OUTSTANDING          (YEARS)         EXERCISE PRICE       EXERCISABLE       EXERCISE PRICE
---------------------------------------------------------------------------------------------------------------------
<S>                       <C>                  <C>                 <C>              <C>                  <C>  
   $0.38 - $0.52          282,784              7.4                 $0.40            200,177              $0.41
   $0.60 - $0.82           27,985              8.3                  0.71                 --                 --
       $3.67                9,138              8.7                  3.67              2,284               3.67
   $6.67 - $7.92           40,670              8.8                  6.89              7,350               6.98
  $13.00 - $17.83          67,500              9.3                 15.03                 --                 --
      $20.17                2,250              9.2                 20.17                 --                 --
---------------------------------------------------------------------------------------------------------------------
  $0.38 - $20.17          430,327              8.0                 $3.50            209,811              $0.67
</TABLE>



   
     As permitted by SFAS 123, the Company continues to apply the accounting
rules of APB 25 governing the recognition of compensation expense from its Stock
Incentive Plan. Such accounting rules measure compensation expense on the first
date at which both the number of shares and the exercise price are known. Under
the Company's plan, this would typically be the grant date. To the extent that
the exercise price equals or exceeds the 

                                       27
<PAGE>
 
                            AML COMMUNICATIONS, INC.
                          NOTES TO FINANCIAL STATEMENTS

                                 MARCH 31, 1997


market value of the stock on the grant date, no expense is recognized. As
options are generally granted at exercise prices not less than the fair market
value on the date of grant, no compensation expense is recognized under this
accounting treatment in the accompanying statements of operations.
   

The fair value of options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
<TABLE>
<CAPTION>

                                                                1996              1997
                                                              --------          ------
<S>                                                              <C>               <C>
     Expected life (years)                                       10                10
     Dividend yield                                              --                --
</TABLE>

   
     The range for interest rate is 4.37% - 7.51% and the range for volatility
is 63.6% - 96.6%. The estimated stock-based compensation cost calculated using
the assumptions indicated totaled $22,000 and $224,000 in fiscal 1996 and 1997,
respectively. This would result in a pro forma net income resulting from the
increased compensation cost of $1,184,000, or $.23 per share, and pro forma net
income of $1,992,000, or $.31 per share, in fiscal 1996 and 1997, respectively.
The effect of stock-based compensation on net income for fiscal 1996 and 1997
may not be representative of the effect on pro forma net income in future years
because compensation expense related to grants made prior to fiscal 1996 is not
considered.
   

7.   EMPLOYEE BENEFIT PLAN

     The Company has a defined contribution 401(k) employee retirement plan (the
"Plan"). Under the terms of the Plan, eligible employees, as defined, may
contribute from 1% to 16% of their pre-tax earnings to the Plan. At its
discretion, the Company may match the employees' contribution up to 6%. Company
matching contribution for the year ended March 31, 1996 was $5,000. The Company
made no matching contribution for the year ended March 31, 1997. Additionally
for the years ended March 31, 1996 and 1997 the Board authorized $25,000 and
$73,000 in discretionary contributions, respectively.

                                       28
<PAGE>
 
ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     Not Applicable.

                                       29
<PAGE>
 
                                    PART III

ITEM 9.   DIRECTORS AND EXECUTIVE OFFICERS

DIRECTORS AND EXECUTIVE OFFICERS

     The Board of Directors consists of five directors divided into three
classes serving staggered three-year terms. The following table sets forth
certain information with respect to the executive officers and directors of the
Company:
<TABLE>
<CAPTION>

NAME                         AGE     POSITION                                                TERM EXPIRES
----                         ---     --------                                                ------------
<S>                          <C>     <C>                                                     <C>
Jacob Inbar                  47      President, Chief Executive Officer and Chairman
                                       of the Board                                          1998
Tiberiu Mazilu, Ph.D.        51      Vice President, Custom Products and Director            1997
Edwin J. McAvoy              52      Vice President, Sales and Marketing and Director        1999
Scott T. Behan               35      Vice President, New Product Development                   --
Daniel L. Gerlach            36      Vice President, Engineering                               --
Kirk A. Waldron              34      Vice President, Finance and Chief Financial Officer       --
David A. Derby (1)(2)        55      Director                                                1997
Richard W. Flatow (1)(2)     56      Director                                                1999
</TABLE>

(1)      Member of the Compensation Committee.
(2)      Member of the Audit Committee

     All officers are appointed by and serve at the discretion of the Board of
Directors. There are no family relationships among any directors or officers of
the Company.

     JACOB INBAR is a co-founder of the Company and has served as its President,
Chief Executive Officer and as a Director since its incorporation in November
1986. Mr. Inbar has served as the Company's Chairman of the Board since
September 1995. Prior to founding the Company, in 1981 Mr. Inbar was a founder
of California Amplifier, Inc. (NASDAQ--CAMP), a manufacturer of microwave
amplifier products, and served as its President and Chief Executive Officer
until 1985. Mr. Inbar holds a B.S. in Electrical Engineering from Ben Gurion
University, Israel and an M.B.A. from California Lutheran University.

     TIBERIU MAZILU, PH.D. is a co-founder of the Company and has served as its
Vice President, Custom Products and as a Director since January 1987. Dr. Mazilu
served as the Company's Chairman of the Board from January 1987 until September
1995. Prior to founding the Company, Dr. Mazilu was a Research and Development
Group Leader for Hughes Aircraft and Missile Systems Group from 1981 to 1986.
Dr. Mazilu holds a Ph.D. in Electrical Engineering, with a specialty in
electromagnetics, from the University of California, Los Angeles.

     EDWIN J. MCAVOY is a co-founder of the Company and has served as its Vice
President, Sales and Marketing and as a Director since its incorporation in
November 1986. Prior to joining the Company, Mr. McAvoy held several positions,
including Director of Marketing, at Dataproducts Corporation, a manufacturer of
printers for the computer industry from 1971 to 1986. Mr. McAvoy holds a B.S.
degree in Applied Engineering from Technical College, Grimsby, England.

     SCOTT T. BEHAN has been with the Company since 1987, and since February
1996 has served as Vice President, New Product Development. Mr. Behan also
served as Vice President, Engineering from November 1994 to February 1996. Prior
to joining the Company, Mr. Behan was a project engineer for American Nucleonics
Co. from 1985 to 1987. From 1981 to 1985, Mr. Behan was a project engineer for
Hughes Aircraft. Mr. Behan holds a B.S. in Electrical Engineering from Worcester
Polytech.

                                       30
<PAGE>
 
     DANIEL L. GERLACH has been with the Company since November 1994 and has
served as Vice President of Engineering since January 1996. Prior to joining the
Company, Mr. Gerlach served as Senior Engineer, Advanced Programs from 1985 to
1994 for American Nucleonics Co., a microwave and RF component and system level
design and analysis firm. Mr. Gerlach holds a B.S. in Electrical Engineering
from California State University, Northridge.

     KIRK A. WALDRON, a Certified Public Accountant, has served as the Company's
Vice President, Finance and Chief Financial Officer since December 1996. Prior
to joining the Company, Mr. Waldron was Chief Financial Officer of
Dynamotion/ATI Corp., a publicly held manufacturer of precision drilling
equipment, from 1994 to 1996, and Controller for Acme Holdings, Inc., a
privately held equipment rental company, from 1991 to 1994. Prior to 1990, Mr.
Waldron held financial management positions at Winchell's Donut Houses, Inc.,
and worked for four years in public accounting at Ernst & Young L.L.P. Mr.
Waldron holds a B.S. in Business Administration with an emphasis in Accounting,
from the University of Southern California.

     DAVID A. DERBY has been a Director of the Company since December 1995, and
has been President, Chief Executive Officer and a director of Datron Systems
Incorporated, a manufacturer of radio and satellite communication systems and
products, since May 1982.

     RICHARD W. FLATOW has been a Director of the Company since December 1995
and has been the President of RWF Enterprises, a management consulting firm,
since 1994. From 1993 to 1994, Mr. Flatow was President and Chief Executive
Officer of Futurekids, Inc., a franchiser of computer training for children.
From 1991 to 1993, Mr. Flatow was a Managing Partner and Senior Consultant for
Hankin & Co., a middle-market management consulting firm. From 1986 to 1990, Mr.
Flatow was Chairman, President and Chief Executive Officer for Avalon Marketing,
Inc., a consumer products holding company.
   


SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Act"), requires directors, certain officers of the Company and persons holding
more than 10% of the Company's Common Stock to file reports concerning their
ownership of Common Stock by dates established under the Act and also requires
that the Company disclose in the Proxy Statement any non-compliance with those
requirements during the fiscal year ended March 31, 1997. Based solely upon a
review of reports delivered to the Company for fiscal 1997, all Section 16(a)
filing requirements were satisfied.



ITEM 10.   EXECUTIVE COMPENSATION

   
     Information required by this item is incorporated by reference to the
information under the captions "Executive Compensation" and "Election of
Directors" in the Company's definitive proxy statement for the 1997 Annual
Meeting of Stockholders to be held on August 27, 1997.
   


ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER AND MANAGEMENT

   
     Information required by this item is incorporated by reference to the
information under the caption "Principal Stockholders" in the Company's
definitive proxy statement for the 1997 Annual Meeting of the Stockholders to be
held on August 27, 1997.
   


ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   
     Information required by this item is incorporated by reference to the
information under the caption "Certain Transactions and Related Transactions" in
the Company's definitive proxy statement for the 1997 Annual Meeting of
Stockholders to be held on August 27, 1997.
   

                                       31
<PAGE>
 
ITEM 13.   EXHIBITS, LISTS AND REPORTS ON FORMS 8-K

     (a) The following are attached as Exhibits to this Form 10-KSB:

          10.1  AML Communications, Inc. Stock Incentive Plan.*
          10.2  Form of Incentive Stock Option Agreement.*
          10.3  Form of Nonemployee Director Incentive Stock Option Agreement.*
          10.4  Incentive Stock Option Agreement, dated August 1, 1994, between
                the Company and Jacob Inbar.*+
          10.5  Stock Option Agreement, dated December 15, 1995, between the
                Company and David A. Derby.+ 
          10.6  Stock Option Agreement, dated August 28, 1996, between the
                Company and David A. Derby.+ 
          10.7  Stock Option Agreement, dated December 15, 1995, between the
                Company and Richard W. Flatow.+
          10.8  Stock Option Agreement, dated August 28, 1996, between the
                Company and Richard W. Flatow.+
          10.9  Incentive Stock Option Agreement, dated April 28, 1997, between
                the Company and Daniel L. Gerlach.+
          10.10 Incentive Stock Option Agreement, dated April 28, 1997, between
                the Company and Kirk A. Waldron.+
          10.11 Form of Indemnity Agreement.*
          10.12 Business Loan Agreement dated October 26, 1995, between the
                Company and Bank of America National Trust and Savings
                Association.* 
          10.13 Security Agreement dated October 26, 1995, between the Company
                and Bank of America.*
          10.14 Subordination Agreement dated October 26, 1995, between Jacob
                Inbar and Bank of America.*
          10.15 Subordination Agreement dated October 26, 1995, between Tiberiu
                Mazilu and Bank of America.*
          10.16 Subordination Agreement dated October 26, 1995, between Edwin J.
                McAvoy and Bank of America.*
          10.17 Standard offer, Agreement and Escrow Instructions for Purchase
                of Real Estate dated December 18, 1995, between the Company and
                John P. Scripps Newspapers.**
          10.18 Standard offer, Agreement and Escrow Instructions for Purchase
                of Real Estate dated January 30, 1996, between the Company and
                Parr-Bohn Properties, Ltd. II, a California Limited
                Partnership.**
          10.19 Lease, dated March 11, 1996, between the Company and Parr-Bohn
                Properties, Ltd. II, a California Limited Partnership.***
          10.20 Business Loan Agreement dated August 2, 1996, between the
                Company and Bank of America National Trust and Savings.****
          10.21 Security Agreement dated August 2, 1996, between the Company and
                Bank of America National Trust and Savings.****
          23.1  Consent of Arthur Andersen LLP
          27    Financial Data Schedule
          *     Previously filed with the Securities and Exchange Commission as
                an exhibit to the Registration Statement on Form SB-2 No.
                33-99102-LA and incorporated herein by reference.
          **    Previously filed with the Securities and Exchange Commission as
                an exhibit to Current Report on Form 8-K of the Company, as 
                filed with the Securities and Exchange Commission on March 13, 
                1996, and incorporated herein by reference.
          ***   Previously filed with the Securities and Exchange Commission as
                an exhibit to the Company's Form 10-KSB for fiscal year ended
                March 31, 1996 and incorporated herein by reference.
          ****  Previously filed with the Securities and Exchange Commission as
                an exhibit to the Company's Form 10-Q for the quarter ended
                September 30, 1996.
          +     Management contract or compensatory plan or arrangement required
                to be filed as an exhibit to this Form 10-KSB.

   
     (b) There were no current Reports on Form 8-K filed by the Company during
the fiscal year ended March 31, 1997.

                                       32
<PAGE>
 
SIGNATURES

   
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
   

AML Communications, Inc.

   
By:       /s/ Jacob Inbar                             Dated:      June 25, 1997
     ----------------------------                              ----------------
              Jacob Inbar
    President, Chief Executive Officer
    and Chairman of the Board


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION> 

              Signature                                Title                       Date   
              ---------                                -----                       ----         
<S>                                        <C>                                <C>    
   
      /s/  Jacob Inbar                      President, Chief Executive         June 25, 1997
----------------------------------          Officer,  Chairman of the          -------------
      Jacob Inbar                           Board (Principal Executive
                                            Officer)                  
                                            
      /s/  Kirk A. Waldron                  Vice President, Finance and        June 25, 1997
----------------------------------          Chief Financial Officer            -------------
      Kirk A. Waldron                       (Principal Accounting  
                                            Officer)               
   
      /s/  Tiberiu Mazilu                   Director                           June 25, 1997
----------------------------------                                             -------------
       Tiberiu Mazilu, Ph.D. 

      /s/ Edwin J. McAvoy                   Director                           June 25, 1997
----------------------------------                                             -------------
       Edwin J. McAvoy 

      /s/  David A. Derby                   Director                           June 25, 1997
----------------------------------                                             -------------
      David A. Derby 
   
      /s/  Richard W. Flatow                Director                           June 25, 1997
----------------------------------                                             -------------
      Richard W. Flatow
</TABLE>

                                       33
<PAGE>
 
      EXHIBIT
      NUMBER                  DESCRIPTION
      ------                  -----------

       10.1   AML Communications, Inc. Stock Incentive Plan.*
       10.2   Form of Incentive Stock Option Agreement.*
       10.3   Form of Nonemployee Director Incentive Stock Option Agreement.*
       10.4   Incentive Stock Option Agreement, dated August 1, 1994, between
              the Company and Jacob Inbar.*+
       10.5   Stock Option Agreement, dated December 15, 1995, between the
              Company and David A. Derby.+
       10.6   Stock Option Agreement, dated August 28, 1997, between the Company
              and David A. Derby.+
       10.7   Stock Option Agreement, dated December 15, 1995, between the
              Company and Richard W. Flatow.+
       10.8   Stock Option Agreement, dated August 28, 1997, between the Company
              and Richard W. Flatow.+
       10.9   Incentive Stock Option Agreement, dated April 28, 1997, between
              the Company and Daniel L. Gerlach.+
       10.10  Incentive Stock Option Agreement, dated April 28, 1997, between
              the Company and Kirk A. Waldron.+
       10.11  Form of Indemnity Agreement.*
       10.12  Business Loan Agreement dated October 26, 1995, between the
              Company and Bank of America National Trust and Savings
              Association.*
       10.13  Security Agreement dated October 26, 1995, between the Company and
              Bank of America.* 10.14 Subordination Agreement dated October 26,
              1995, between Jacob Inbar and Bank of America.*
       10.15  Subordination Agreement dated October 26, 1995, between Tiberiu
              Mazilu and Bank of America.*
       10.16  Subordination Agreement dated October 26, 1995, between Edwin J.
              McAvoy and Bank of America.*
       10.17  Standard offer, Agreement and Escrow Instructions for Purchase of
              Real Estate dated December 18, 1995, between the Company and John
              P. Scripps Newspapers.**
       10.18  Standard offer, Agreement and Escrow Instructions for Purchase of
              Real Estate dated January 30, 1996, between the Company and
              Parr-Bohn Properties, Ltd. II, a California Limited Partnership.**
       10.19  Lease, dated March 11, 1996, between the Company and Parr-Bohn
              Properties, Ltd. II, a California Limited Partnership.***
       10.20  Business Loan Agreement dated August 2, 1996, between the Company
              and Bank of America National Trust and Savings.****
       10.21  Security Agreement dated August 2, 1996, between the Company and
              Bank of America National Trust and Savings.****
       23.1   Consent of Arthur Andersen LLP
       27     Financial Data Schedule

-----------------------------------
       *      Previously filed with the Securities and Exchange Commission as an
              exhibit to the Registration Statement on Form SB-2 No. 33-99102-LA
              and incorporated herein by by reference.
       **     Previously filed with the Securities and Exchange Commission as an
              exhibit to Current Report on Form 8-K of the Company, as filed
              with the Securities and Exchange Commission on March 13, 1996, and
              incorporated herein by reference.
       ***    Previously filed with the Securities and Exchange Commission as an
              exhibit to the Company's Form 10-KSB for fiscal year ended March
              31, 1996 and incorporated herein by reference. + Management
              contract or compensatory plan or arrangement required to be filed
              as an exhibit to this Form 10-KSB.
       ****   Previously filed with the Securities and Exchange Commission as an
              exhibit to the Company's Form 10-Q for the quarter ended September
              30, 1996.
       +      Management contract or compensatory plan or arrangement required 
              to be filed as an exhibit to this Form 10-KSB.

                                       34