U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    Form 10-K

            [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
                                       OR
          [ ] 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: 0-15449

                      CALIFORNIA MICRO DEVICES CORPORATION
                      ------------------------------------
             (Exact name of registrant as specified in its charter)

              California                                  94-2672609
              ----------                                  ----------
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)

          215 Topaz Street, Milpitas, CA                  95035-5430
          ------------------------------                  ----------
     (Address of principal executive offices)             (Zip code)

        Registrant's telephone number, including area code: (408)263-3214
                                                            -------------

        Securities registered pursuant to Section 12(b) of the Act: None

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

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 files pursuant to Item 405 of
Regulation S-K (Section  209.405 of this chapter) is not contained  herein,  and
will not be contained to the best of registrant's  knowledge,  in any definitive
proxy or information statement incorporated by reference in Part II of this Form
10-K or any amendment to this Form 10-K.
                                 Yes  X   No
                                     ----     ----

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant as of March 31, 1997, was approximately $51,682,000.00 based upon the
last  sale  price of the  common  stock  reported  for such  date on the  NASDAQ
National Market System.  For purposes of this  disclosure,  common stock held by
persons who hold more than 5% of the outstanding  voting shares and common stock
held by executive officers and directors of the Registrant have been excluded in
that such persons may be deemed to be "affiliates" as that term is defined under
the rules and  regulations  promulgated  under the Securities Act of 1933.  This
determination of affiliate status is not necessarily a conclusive  determination
for other purposes.

As of March 31,  1997,  the number of shares of the  Registrant's  common  stock
outstanding were 9,741,124.

                       DOCUMENTS INCORPORATED BY REFERENCE

The Proxy  Statement for the  Registrant's  Annual Meeting of Shareholders to be
held July 18, 1997.

<PAGE>

                                     PART I


      This report  contains  forward  looking  statements  within the meaning of
      Section 27A of the Securities Act of 1933, as amended,  and Section 21E of
      the  Securities  Act of  1934,  as  amended.  Except  for  the  historical
      information   contained  in  this  discussion  of  the  business  and  the
      discussion and analysis of financial  condition and results of operations,
      the matters discussed herein are forward looking statements.  Such forward
      looking  statements are made pursuant to the safe harbor provisions of the
      Private  Securities  Litigation  Reform Act of 1995.  The forward  looking
      statements regarding revenues,  orders and sales involve a number of risks
      and uncertainties,  including but not limited to, demand for the Company's
      product,  pricing  pressures which could affect the Company's gross margin
      or the  ability  to  consummate  sales,  intense  competition  within  the
      industry,  the  need  for the  Company  to keep  pace  with  technological
      developments  and  respond  quickly  to  changes in  customer  needs,  the
      Company's  dependence  on third party  suppliers  for  components  for its
      products and the Company's  dependence upon  intellectual  property rights
      which,  if not  available  to the Company,  could have a material  adverse
      effect on the Company.  These same factors, as well as others, such as the
      continuing  litigation  involving  the  Company,  could  also  affect  the
      liquidity  needs of the Company.  Actual  results could differ  materially
      from those  projected  in the forward  looking  statements  as a result of
      factors set forth below and elsewhere in this Form 10-K.

ITEM 1. BUSINESS.

General

The business  strategy of  California  Micro Devices  Corporation  ("CMD") is to
develop  and  capitalize  on the  high  growth  market  for  Thin  Film  Passive
Electronic  Components and related semiconductor  solutions.  The Company serves
Original  Equipment   Manufacturers   (OEM)  and  End  User  electronic  systems
manufacturers who need higher  performance,  higher density,  lower cost, unique
functionality,  and faster time to market.  The Company  combines  multiple Thin
Film  Passive   Electronic   Components   (resistors  and   capacitors)   and/or
semiconductor  devices into solutions for many of the industry's  most difficult
problems,  and allow CMD customers to build systems which provide superior value
to their users.  CMD has forged a leadership  position by combining  proprietary
materials,  process,  semiconductor,  and design  technologies  while  providing
specialized applications support to its customers.

CMD's thin film  networks  fall into two basic  categories:  The  Company's  new
P/Active(TM)  circuits  incorporate the latest in high frequency,  high density,
high reliability  technology in Application Specific Passive Networks (ASPN(TM))
for high volume  industry  standard  applications,  or devices which  complement
industry  leaders'   semiconductor   solutions.   The  second  category  is  the
traditional  IPEC(TM)  family,  which  consists  of custom and  general  purpose
devices for solving unique customer problems.

Unlike  traditional  discrete component products which were developed during the
age  of  the  transistor,   CMD's  products   combine  the  features  of  higher
performance,  higher density,  and lower total system cost to complement many of
today's most sophisticated and cost effective  integrated circuit based systems.
Applications   in  fields  such  as  high  speed   computers  and   peripherals,
telecommunications,  networking,  and medical  instrumentation  demonstrate  the
value  which CMD can  bring to  almost  any  electronics  application.  

CMD  also  designs,   manufactures  and  sells  certain  semiconductor  products
(primarily   analog  and  mixed  signal  products  for  the   telecommunications
industry).  These sales are a  significant  portion of the  Company's  business,
accounting  for  approximately  40% of product  sales over the last three fiscal
years. Sales of older products,  which have historically constituted the bulk of
the Company's  semiconductor  revenue,  continue to decline,  while sales of new
products  for  mobile  communications,  plus the onset of revenue  from  foundry
services and many of CMD's new P/Active(TM)  circuits,  have begun to rejuvenate
the semiconductor portion of the Company's business.

CMD has a  relationship  with Hitachi Metals Ltd., a subsidiary of Hitachi Ltd.,
that involves equity  participation,  product  development,  plus manufacturing,
marketing and non-exclusive  worldwide  distribution rights. During fiscal 1997,
CMD recognized $1.4 million in technology  revenue from Hitachi and $2.1 million
of product revenue.

CMD was  incorporated in 1980 and has been public since 1986. It utilizes 86,000
square feet of facilities in Milpitas,  California and Tempe,  Arizona.  
<PAGE>

Passive Components

Passive  components  -  principally  resistors  and  capacitors  - are  used  in
virtually all electronic products. They filter, condition,  shape, terminate and
improve the  characteristics  of the electrical  signals used and transmitted by
active  components  such as  microprocessors,  Application  Specific  Integrated
Circuits ("ASIC's") and dynamic random access memories ("DRAM's").  Although the
role of passive components has changed over the years, their usage has continued
to grow with the transition to higher levels of semiconductor  integration.  For
many years the  number of passive  components  in systems  such as the  personal
computer was  decreasing,  being offset in the market by  increasing  numbers of
systems. However, in the last few years there has been a reversal of this trend.
The number of passives in a PC reached a minimum with the 486  generation and is
now showing  dramatic  increases in the  Pentium(R)  and Pentium  Pro(R)(1)  and
equivalent workstation generations.  Similar trends are occurring in other areas
where new functionality and higher  frequencies are being  incorporated in state
of the art systems, dramatically increasing the demands on passive components.

According  to  industry  sources,  the  worldwide  market for  selected  passive
components  includes over $5.0 billion for resistors and resistor networks,  and
over  $9.0  billion  for  capacitors.   Unit   consumption   continues  to  grow
significantly,  driven by the increasing complexity of products such as personal
computers,   networking  equipment  and  telecommunications   devices,  and  the
increasing  volume  of  portable  products  such as  cellular  phones,  personal
communication  systems  ("PCS"),  pocket  pagers,  personal  digital  assistants
("PDA's") and notebook computers. In addition,  market growth has been augmented
by greater  electronic  content in products such as automobiles  and appliances.
During  calendar  year  1996,  over-capacity  in the  passives  industry  led to
significant price reductions so that even in the face of increased unit demands,
total industry revenue  declined.  Given the enormous  diversity of requirements
which have developed over the years, CMD can address only a small portion of the
overall market for passive components;  however, it is positioned in some of the
larger and most rapidly growing segments.

The target applications for CMD's passive devices are those traditionally served
by  multi-layered   ceramic   capacitors   ("MLCs")  and  thick-film   resistors
interconnected on PC boards. The materials used in these products are inherently
difficult  to  process  into the fine line,  tight  tolerance  circuit  patterns
demanded by today's high performance  electronic systems.  Passive components so
manufactured,  which  comprise  most of the  worldwide  market for resistors and
small value capacitors, are generally discrete components,  able to perform only
a single  function per device.  The nature and variety of materials  involved in
MLCs and thick film resistors limit the ability of thick film  manufacturers  to
integrate  combinations of resistors and capacitors  into a single  circuit. 

In contrast,  continuing  improvements  in silicon  fabrication  technology have
enabled  integrated  circuit  manufacturers to integrate  increasing  numbers of
active components,  principally  transistors,  onto single  semiconductor chips.
This  integration has increased the number of functions  performed by each chip,
improved  performance,  and significantly  reduced the cost per function.  While
thick film  manufacturers  have  attempted to integrate  resistors into networks
since the 1970's,  they have achieved only limited  integration.  The failure of
passive  components to match the improvements in active  components has led to a
relative  increase in the cost of using  passive  components  as compared to the
cost of the  surrounding  active  elements,  increased  the  proportion of space
occupied by passive components on many printed circuit boards ("PCB'-s"), and in
some cases limited the ability of system  designers to take  advantage of higher
performance  integrated circuits.  This is the opportunity CMD looks to exploit.
Most of the traditional thick film passive  manufacturers  have acknowledged the
advantages  of thin film  devices and  announced  their  intention  to enter the
market.

CMD's Goal/Strategy

The Company's goal, as the leader in integrated thin film passive components, is
to create a high growth company by converting  significant portions of the thick
film passive  market to its thin film  technology.  CMD's strategy for achieving
this is to target  specific  market  segments  which place a high value on CMD's
capabilities,  develop solutions to targeted high volume applications  (standard
or custom),  and leverage its thin film and  semiconductor  expertise - which it
believes is a unique  combination  in the  industry - to provide  products  with
significant cost, size,  performance and reliability advantages over traditional
passive  components.   The  Company  also  intends  to  

 _______________________
(1)Pentium and Pentium Pro are registered trademarks of Intel Corp.

                                       2
<PAGE>

leverage  its  base  of  thin  film  technology  to  enhance  its  semiconductor
technology  and to  provide  components  which  compliment  its  unique  passive
solutions to customer problems. Key elements of the Company's strategy include:

        Target High Volume  Solutions - The  Company  targets  manufacturers  of
products in growth markets such as personal computers,  cellular phones, pagers,
networking,   wireless   computer   networks  and  high   performance   graphics
workstations,  all of which  have an  increasing  need for  higher  performance,
higher density passive components.  The Company attempts to identify common high
volume applications or, when appropriate,  designs customized  solutions to meet
particular customer applications.

        Commit  to  Technology  Leadership  - CMD uses its  extensive  thin film
processing  and  materials  expertise  in  combination  with  its  semiconductor
capabilities to develop and expand its product  technology.  During fiscal 1997,
the Company  increased  its  investments  in research  and  development  for new
process  and  product  technology  despite a decline  in sales.  The  Company is
pursuing  the use of new  device  structures  in order  to  expand  the  product
capabilities and serve a broader segment of the passive component  markets.  The
Company is also using its  expertise  in  integrating  different  components  to
develop  combinations of passive  components and certain active components (such
as MOS transistors and Schottky diodes), into its P/ActiveTM solutions.

        Maintain  Position as Low Cost  Solution  Provider - CMD believes  that,
through the use of its thin film technology, it provides one of the lowest total
cost solutions for its customer's  passive  component needs. The Company intends
to maintain this position and during  fiscal 1997 made  significant  capital and
technology investments to enhance its position. CMD also made a major transition
during  fiscal 1997 by moving  large  portions of its test and finish  operation
into lower cost Far East contractors.

        Leverage the  Capabilities of CMD's  Semiconductor  Technology - CMD has
historically  had  a  highly  underutilized  semiconductor  capability.  Besides
utilizing these capabilities to enhance the Company's P/ActiveTM solutions,  the
Company has begun doing foundry work (contract  wafer  manufacturing)  for other
semiconductor  manufacturers.  While  this  provides a lower  margin  than CMD's
traditional  products,  it provides an  opportunity  for  additional  fixed cost
absorption, and allows the Company to fine tune its manufacturing operations for
high  volume.  In  addition,  the  Company  has  been  developing  its  own  new
semiconductor products for the mobile telecommunications market and other custom
applications, as well as new for its P/Active thin film products.

P/Active(TM) Technologies

In the Spring of 1996, CMD introduced  it's new P/ActiveTM  family of integrated
passive  components.  These  devices  represent  a  major  step  forward  in the
development of high performance passive components.

Historically, integrated thin film passive components have been built on silicon
wafers.  But for all intents and  purposes,  the silicon was  incidental  to the
devices  themselves.  Silicon wafers are relatively  cheap,  readily  available,
extremely high quality,  and are supported by many  generations of semiconductor
processing equipment.  They make an outstanding vehicle on which to deposit thin
films for creating higher performance  passive  components.  But the role of the
silicon was historically that of an inactive carrier.

In late  calendar  1990 and early 1991,  CMD made the first  change in this role
when it introduced a family of multiple  Resistor-Capacitor  configurations in a
package.  As  originally  conceived,  construction  of these  devices would have
involved the deposition of multiple  layers of conducting  and  insulating  thin
films on the top of the traditional  "passive"  silicon  substrate,  using metal
films to interconnect  them. CMD pioneered a method of using very low resistance
semiconductor wafers for the substrate to interconnect the common ground node of
all the  capacitors  through the "silicon  interconnect"  provided by the wafer,
instead of using  metals.  These  products were a major  success,  providing new
levels of performance and reliability.

California  Micro Devices new  P/ActiveTM  family  recognizes  the power of this
concept and extends it further.  In the P/ActiveTM family, the silicon substrate
fills a variety of roles. In some products,  it is used to provide this original
silicon interconnect  function although in additional  configurations.  In some,
the silicon is used to provide  controlled ground plane  characteristics so that
devices  have  uniform  operating  characteristics.  In others,  ESD  protection
mechanisms  for high  performance  capacitors  are created in the  substrate and
integrated with the passives.  And in still others,  the integration of Schottky
diodes both as simple networks and in combination  with other passive devices is
provided.

                                       3
<PAGE>

In summary,  CMD has changed the  traditional  role of the silicon wafer in thin
film passives  from being a  non-contributing,  passive  carrier upon which thin
films  were  deposited,  to that of an active  part of the  functioning  device,
extracting the full measure of capability from the silicon  substrate to provide
customer   solutions  that  have   performance   exceeding  the  limitations  of
traditional  devices.  CMD's  semiconductor  capabilities  are  central  to this
solution.

The CMD  Solution/Advantages

CMD integrates multiple passive elements into a single integrated  circuit.  The
Company  believes  that its thin  film  products  have the  following  desirable
advantages over traditional thick film technology components:

        Lower Total Cost Solutions - Manufacturers  of electronic  products face
intense price competition.  By integrating multiple passive elements on a single
chip, the Company is able to offer a lower total cost solution than that offered
by most discrete  passive  component  manufacturers.  The cost of purchasing and
placing one of the Company's thin film integrated  resistor/capacitor networks -
which may combine 18  resistors  and 18  capacitors  in a single  surface  mount
package - can be as much as 50% less than the cost of purchasing  and installing
an  equivalent  number of thick film discrete  elements.  The Company's PAC 1284
solution for the parallel  ports of PC's and  Workstations  replaces 36 discrete
resistors,  18 capacitors,  and the equivalent of 36 ESD protection  diodes with
two  miniature  IC packages.  The  customer can realize  further cost savings by
reducing  the size of the  printed  circuit  board  ("PCB"),  eliminating  board
interconnection,   and  by  using  industry  standard  semiconductor   insertion
equipment for assembly.

        Smaller Size for  Miniaturization  and Portability - Consumer demand for
smaller,  more portable  products has created a need for smaller PCB's.  Passive
components can require significant space on the PCB, limiting either the ability
to  shrink  product  size  or  to  incorporate  additional  features.   This  is
particularly  important in devices such as portable  computers,  cellular phones
and pagers.  The integration of multiple passive elements on a single integrated
circuit  reduces the size and weight of the passive  components.  For  instance,
cellular  phones  generally  require  hundreds  of discrete  semiconductors  and
passive components which can consume as much as 30% of the PCB space. One of the
Company's  IPEC(TM)  products,  which integrates 18 capacitors and 18 resistors,
reduces  the space used on the PCB by up to 80%  compared to the use of the same
number of discrete elements. Discrete components have been introduced in smaller
sizes such as the newer format called 0402 in an attempt to provide some of this
space savings.  But such tiny devices create significant  assembly,  rework, and
reliability  problems for manufacturers which significantly  increases costs. It
appears  that  discrete  passive  components  may be reaching the limits of size
reduction and there is increasing  interest in integrating  more components in a
given package as CMD is doing.

        Performance  at  Higher  Frequencies  - The  increasing  use  of  faster
microprocessors  in computers and higher  frequencies in communication  products
has created a significant  demand for improved  passive  component  performance.
Traditional  passive  components  do not perform well at many of today's  higher
frequencies due to a variety of problems including  variation of characteristics
with frequency,  signal matching delays, and performance inconsistencies between
devices and the PCB's in which they are used.  These  problems often keep higher
frequency  systems from operating  properly.  The Company's thin film technology
components  perform well at high frequencies due to the inherently  smaller size
of the  component  and  the  ability  to  achieve  consistent  placement  of the
components  relative to each other. The Company's new products,  such as the PAC
RC family of  filters,  operate  properly  at up to 10 times  the  frequency  of
traditional discrete components. Other devices such as the PAC RG family for the
Pentium   Pro(R)  and  other   high   performance   microprocessors   have  been
characterized at frequencies up to 10 GHz (well beyond the functional  limits of
traditional devices) to provide customers with the operating range they need for
the operation of present and next generation systems.

        New EMI/RFI  Filtering  Capabilities  - Electronic  systems  designed to
operate  at  high   frequencies   can  emit  high   levels  of   Electromagnetic
Interference/  Radio  Frequency  Interference  (EMI/RFI).  These  emissions  are
strictly  regulated  by the Federal  Communications  Commission  ("FCC") and the
European  community.  Because  systems  manufacturers  can  only  test  for  the
existence  of  EMI/RFI  emission  problems  late in the  product  design  cycle,
non-compliance   with  FCC   requirements   can   result  in   delayed   product
introductions. As products run at higher frequencies and become smaller and more
mobile, the difficulty in suppressing these emissions  increases.  The Company's
filters are  capable of  suppressing  EMI/RFI  noise by as much as 10X more than
combinations of thick 

                                       4
<PAGE>

film components at high  frequencies.  The Company believes that this provides a
significant  advantage  for  state  of the art  digital  cellular  phones,  high
performance microcomputers and workstations as well as other portable electronic
equipment.  CMD's new P/ActiveTM filters are effective to over 3 GHz, as much as
10 times  the  frequency  at  which  traditional  capacitors  stop  acting  like
capacitors and start looking like inductors (stop filtering). This can result in
fewer problems in final FCC testing.

        Improved  Reliability - In addition,  the Company's thin film technology
is more reliable than traditional thick film technology due to greater tolerance
to hostile environmental conditions and the reduction in the number of component
interconnections.  The  Company's  use  of  reliable  processes  common  to  the
semiconductor  industry  eliminate  many of the problems with solder  migration,
cracking and peeling,  sensitivity to environmental conditions,  and poor solder
joints which often accompany the use of thick film  technologies.  Additionally,
the Company's new  P/ActiveTM  circuits  have enhanced  electrostatic  discharge
(ESD) protection to minimize the possibility of damage during the  manufacturing
process.  In the case of CMD's  PAC 1284  parallel  port  filter  (for  PC's and
workstations),  the additional ESD protection also contributes to protecting the
high performance  semiconductors  used for these functions.  

Sales and Marketing

The Company has focused its marketing efforts in the areas of personal computers
and  their  peripherals,   portable  communications  devices,  high  performance
workstations,  and networking  systems.  Additionally,  the Company  focuses its
efforts on major world wide electronic  system  manufacturers who participate in
these  segments and where the Company  feels it has the greatest  opportunities.
This often  implies a longer  design-in  cycle,  but greater long term  business
potential.

The Company works with existing and potential new customers to identify  passive
and specialized  semiconductor  component needs which the Company's capabilities
address,  and seeks to have  customers  design the  Company's  products into the
customer's   electronic  systems.  The  Company  facilitates  these  efforts  by
providing  customized  solutions to meet  customer  design  requirements.  These
customized designs,  and the knowledge acquired during the process, can often be
used to create  standard  products  which the Company can then offer for similar
application requirements in other areas.

During  fiscal  1997,   the  Company   continued  to  strengthen  its  marketing
applications  efforts to understand in detail the problems facing  manufacturers
in its  chosen  segments,  so as to be able to  specify  and  ultimately  design
Application  Specific Passive Networks  (ASPN's(TM))  which satisfy the needs of
multiple  customers.  In essence,  the Company is becoming a value-added partner
with both customers and leading vendors of semiconductor  devices to provide the
knowledge and the passive networks to complement the active devices in a system.

CMD sells its products to OEMs and  distributors.  The Company's  sales channels
consist primarily of independent regional sales representatives supported by the
Company's  sales force,  which is located in Milpitas,  California  and in three
regional   sales  offices.   The  Company   believes  that   independent   sales
representatives  generally provide an effective sales force at a lower cost than
a  dedicated  internal  sales  force.   Independent  sales  representatives  are
generally  able to leverage their sales efforts by offering  multiple,  although
normally not competing,  products from different vendors to their customers. The
Company's major accounts are also supported by headquarters  directed efforts of
the sales, marketing and applications engineering staff.

The Company sells through  distributors,  both in the U.S.A. and in the Far East
and  Europe,  to  provide  sources of its  products  at  locations  close to the
customers.  As the Company's standard product line expands,  the Company expects
that more of its sales may be  through  national,  international,  and  regional
distributors.   Distributors  are  particularly  effective  in  serving  smaller
customers and those with particular service requirements.

During fiscal 1996,  the Company hired a new Vice  President of Marketing and an
experienced  regional sales manager for its Western region.  It opened its first
international  technical support  operation in Taiwan.  There were also internal
organization  shifts to leverage the  experience  and knowledge base of existing
personnel.   Additionally,  CMD  continued  to  make  changes  to  its  list  of
representatives  to secure firms whose customer list and general product mix are
complementary  to CMD's  target  markets  and  customers.  The  Company has been
expanding  headquarters sales and marketing resources with experienced marketing
engineers and  applications  engineers to support all its sales and distribution
activities.

                                       5
<PAGE>

As the fiscal year came to a close,  the  existence of  significant  shareholder
litigation in connection  with events in 1994 began to fade as an impediment for
the Company in doing business with some potential customers.  This should not be
a significant factor in fiscal year 1998.

The  Company's  foreign  product  sales  accounted  for 36%, 31%, and 33% of net
product sales for fiscal year ended March 31, 1997,  the fiscal year ended March
31,  1996,  and the nine months ended March 31, 1995  respectively.  The Company
uses  independent  foreign sales  representatives  and  distributors  to provide
international  sales support.  The Company expects that international sales will
continue to  represent a  significant  portion of its sales for the  foreseeable
future.  The Company's  sales are  denominated  in US dollars to avoid  currency
risk.

A  significant  portion of the  Company's  sales are made to a relatively  small
number of customers.  In fiscal 1997,  Motorola accounted for 11% of net product
sales.  However,  CMD has  diversified  both its  customer  base and product mix
during fiscal 1997 with a significant increase in business to the portable phone
and pager markets and recent progress in the networking areas. It remains a goal
of the Company to get more balanced  penetration and become less  susceptible to
swings in any specific application area or with any given customer.

Most of the systems into which the  Company's  products are designed  have short
life  cycles.  As a result,  the Company  requires a  significant  number of new
design wins on an ongoing basis to maintain and grow revenue.

Generally, the Company's sales are not subject to long-term contracts but rather
to  short-term  releases  of  customer's  purchase  orders,  most of  which  are
cancelable  on  relatively  short  notice.  The  timing  of these  releases  for
production as well as custom design work are in the control of the customer, not
the  Company.  Because of the short life  cycles  involved  with its  customers'
products,  the order  pattern  from  individual  customers  can be erratic  with
significant  accumulation and  de-accumulation of inventory during phases of the
life cycle.  For these  reasons,  the  Company's  backlog and bookings as of any
particular  date may not be  representative  of actual sales for any  succeeding
period.

In addition,  the Company  derives  technology  revenue and revenue from product
sales through agreements with Hitachi Metals Ltd.

Products

Thin Film Products

The Company's thin film product offerings fall into two categories:

o    CMD's new  P/Active(TM)  family of components which optimize high frequency
     performance,  density,  reliability, and other capabilities.  These devices
     are Application  Specific  Passive  Networks  (ASPN(TM))  targeted to solve
     industry  standard   applications,   or  to  complement  the  semiconductor
     offerings of the industry's leading chip suppliers.

o    IPECs(TM),  the  Company's  traditional  custom  products  which  are  cost
     effective for  customers  with unique high volume  requirements  or who can
     take  advantage of CMD's  capabilities  to provide  tight  tolerances,  low
     temperature  coefficients,  tight  matching  between  components,  or other
     special characteristics.


All  these  devices  provide  the  benefits  of  combining  multiple  thin  film
resistors,  capacitors,  diodes, etc. in single high density packages. Resistors
impede the flow of electrical  current and dissipate  electrical energy as heat.
They  are used to  divide,  pull-up/pull-down  voltage,  terminate  and  control
current  and filter out noise.  Capacitors  store  electrical  charges  and pass
alternating    current    while    blocking    direct    current.     Integrated
resistors-capacitors  are used for a variety  of  purposes  including  filtering
electromagnetic  radio frequency  interference,  creating  high-pass or low-pass
filters, and terminating transmission lines.  Resistor-capacitor-diode  networks
clamp  (limit the  magnitude  of)  voltage  swings as well as filter  electrical
signals.

The Company offers a variety of precision and non-precision  thin film resistors
and  capacitors  as well as  combinations  of those  elements  with and  without
semiconductor  devices.  The  Company  has  particular  strength  in the area of
resistor-capacitor  filters,  one of the  most  rapidly  growing  and  difficult
segments of the passive 

                                       6
<PAGE>

component  business.  The Company's current product line addresses a substantial
portion of the resistor and resistor  network market,  and a small percentage of
the capacitor market.

The  Company  sells  these  products  both in  standard  semiconductor  industry
packages,  primarily  Surface Mount  Technology  (SMT),  and as unpackaged  die.
Packaged devices  represent the dominant portion of the Company's  business.  As
the pressure for higher  performance  and density  continues to mount on systems
manufacturers,  there is growing interest in the Company's capability to provide
"bumped"  die for  flip  chip  assembly. 

As electronic  circuits increase in performance,  it becomes more important that
component  values be more  precise  and vary as little as  possible  over a wide
range of operating  conditions.  The Company's  products are  continually  being
optimized to maintain their fundamental characteristics and tolerances over wide
ranges  of  frequency  and  temperature.  Much  of the  Company's  research  and
development is directed into these efforts.

Semiconductor  Products

The Company's  semiconductor  facilities are nominally limited to the production
of CMOS or BiCMOS  circuits using greater than 1.5 micron minimum  feature size.
This  requires  the  Company  to  focus on  specialized  circuits,  rather  than
competing at the leading edge of the semiconductor technology.

The Company's semiconductor business includes analog and mixed signal integrated
circuits which combine  digital and analog  functions on a single chip.  Product
groups include data communications and interface families, and telecommunication
dual tone  multi-frequency  receiver  and  transceiver  (DTMF)  products.  These
products are used in customer applications such as personal computers, answering
machines,  portable  telephones  and  switching  systems.  The  Company has seen
significant  interest and business  from low voltage/ low power  versions of its
DTMF  circuits.  Additionally,  the  Company  is  providing  a number  of custom
circuits for some high volume customers.

The Company has begun to participate in the foundry business in which wafers are
fabricated to customer  specifications,  using customer  designed  tooling.  The
Company's  intent is to do foundry  work to  leverage  the  capabilities  of its
available  capacity  in Tempe,  Arizona  while it builds  its own  products  and
establishes relationships with key partners.

Technology

Thin Film Processes

The  Company  has  built  upon over 15 years of thin  film  experience  with the
military and  aerospace  market to develop its  commercial  technology,  and the
Company  believes that this expertise  provides it with a significant  technical
advantage over its competitors.  "Thin film" refers to the deposition of various
materials atom by atom in very thin layers on a suitable substrate.  The Company
is able to  deposit/grow  films  in  layers  as thin as 0.01  microns,  which is
approximately  1,000 times  thinner than  typical  thick film  layers.

Thin  film  processing  involves  the  deposition  of  multiple  thin  layers of
materials, one layer at a time. The number and the sequence of layers depends on
the level of integration of the passive components and the type of devices being
fabricated.  To integrate  resistors and  capacitors,  the process  includes the
deposition of an insulating  layer,  resistive  material,  capacitor  dielectric
material,  interconnecting  layers for external  connection (pads),  passivation
layers and potentially several interface layers.  CMD's new P/ActiveTM family of
resistor-capacitor  devices also includes the provision of  semiconductor  based
ESD  protection  devices  to insure  greater  reliability  for  these  very high
frequency  devices.  If diodes or transistors  are added,  the structure is more
complex, requiring the addition of a number of metallic and dielectric thin film
layers in addition to the underlying semiconductor technology.  The Company uses
conventional  semiconductor  photolithography  to create the  circuit  patterns.
However, many of the other processes are more complicated due to the thinness of
layers and diversity of materials.  The Company  applied for four patents on new
thin film passive technologies during fiscal year 1997.

                                       7
<PAGE>

Manufacturing

The Company's  manufacturing  processes are complex, and require production in a
highly  controlled,  clean  environment  suitable  for fine  tolerances.  Normal
manufacturing  risks include  errors in  fabrication  processes,  defects in raw
materials,  as well as other  factors  which  can  affect  yields.  The  Company
currently  operates  wafer  fabrication  facilities in Milpitas,  California and
Tempe,  Arizona.  The Milpitas facility includes a 10,000 square foot clean room
and  primarily  uses  4 and  5  inch  round  and 4 1/2  inch  square  wafers  to
manufacture thin film passive components. The Tempe facility,  acquired from GTE
in 1987,  includes a 16,000 square foot clean room and is equipped for five inch
wafer  fabrication  of both thin film and  semiconductor  products.  The Company
estimates that its wafer capacity utilization for the year ended March 31, 1997,
was  approximately  40% in  Tempe  and 40% in  Milpitas.  Obtaining  full  wafer
fabrication  capacity  from  both of  these  locations  would  require  moderate
additional capital expenditures. 

During fiscal 1997, both the Milpitas  facility and the Tempe facility  received
ISO 9000  certification.  This  certification is an  internationally  recognized
acknowledgment  that  the  Company  has  established  and  adheres  to  detailed
operational controls.

CMD  manufactures  its products  using  industry  standard  semiconductor  wafer
fabrication  equipment  that the Company  modifies as  necessary to produce thin
film products.  The Company has historically purchased used processing equipment
at  significantly  lower cost than new equipment,  but also began purchasing new
equipment for some operations during fiscal year 1997 where it could be shown to
be more cost  effective.  The Company has also reduced costs by  optimizing  its
designs,  reducing the size of the individual components by circuit pattern line
width reduction, and developing new device structures.

During fiscal 1996, and continuing in fiscal 1997, the Company made  substantial
investments  in  capital  equipment  to both  upgrade  its  capabilities  and to
increase  capacity in areas such as test and finish of thin film products.  Much
of the Company's  equipment is very old,  resulting in higher maintenance costs,
more down-time,  and in some cases the risk of the unavailability of spare parts
or the expertise to maintain the  equipment.  Selective  investments  in capital
equipment will enhance  productivity  and improve costs, as well as increase the
Company's revenue potential.

The Company anticipates  converting certain of its fabrication operations from 5
inch to 6 inch wafers  during the next couple of years.  Five inch wafers are no
longer considered to be economically viable for many applications and there is a
risk of supply as vendors  direct their  resources  to larger wafer sizes.  This
transition  will not be  attempted  in  totality  until the  utilization  of the
existing facilities is significantly increased. Within CMD, this conversion will
generally be accomplished  by the conversion of existing  equipment and purchase
of used  equipment.  All the  equipment  which is currently  being  purchased is
suitable  for 6 inch  wafers,  so  that  by  the  time a  conversion  is  deemed
appropriate, much of the required equipment will be in place.

The Company uses  subcontractors in Asia,  primarily Thailand and Malaysia,  for
assembly  and  packaging  most of its  product.  Although  the  Company  has not
typically experienced any significant disruption of deliveries due to the use of
foreign  subcontractors,  this common industry  practice is subject to political
and  economic  risks.   The  volatility  of  the   semiconductor   industry  has
occasionally   resulted  in  shortages  of  subcontractor   capacity  and  other
disruptions  of supply.  This capacity was in short supply during much of fiscal
1996, but is presently in ample supply as a result of additional  investments by
vendors coupled with a slowdown in the semiconductor industry growth rate.

During  fiscal  1997,  CMD began  testing and  finishing a large  portion of its
product at the site of the assembly vendors, and the proportion of the Company's
product tested there is expected to continue to increase.  CMD has also begun to
"drop-ship"  product  from these  assembly  vendors to  customers.  This has the
effect of both saving  freight  charges and reducing  the  delivery  cycle time.
However,  it increases the Company's  exposure to  disruptions in operations not
under its direct control and has required the Company to enhance its MIS systems
to coordinate this remote activity.

As a result of the transfer of high volume testing to the Far East, CMD was able
to vacate its two small leased  facilities in Tempe,  Arizona  during the latter
half of fiscal year 1997 and consolidate its remaining  operations in the larger
owned facility. The two smaller facilities were sub-leased, thereby reducing the
Company's cost structure.

                                       8
<PAGE>

Management Information Systems

In the last  half of fiscal  1996,  CMD  installed  new  management  information
systems  for  work  in  process  tracking,   order  processing,   and  financial
management.  During  fiscal  year 1997 these  systems  were  solidified  and new
capabilities  installed.  The Company became able to analyze costs and variances
at the detailed operational level and is now using these tools for cost analysis
and  reduction.  Also,  the new systems are  beginning  to provide  insight into
customer order patterns and requirements.

The investment in MIS systems will continue during the next few years.

Competition

Competition in the passives industry is based on a number of factors,  including
price, product performance,  established customer  relationships,  manufacturing
capabilities,  product development and customer support. The primary competition
for the  Company has come from  established  competitors  and from  pre-existing
technologies. Many of the Company's competitors have announced that they will be
providing  thin film products as well as their  traditional  thick film devices.
CMD has seen only  sporadic  direct  thin film  competition,  but  continues  to
believe that this competition  will become more prominent.  From information the
Company has, these competitors are trying to emulate CMD's product line, but may
find it difficult to replicate  CMD's new P/ActiveTM  technology  because of the
significant component of semiconductor technology involved.

The Company's  primary  competitors  for its  resistors,  resistor  networks and
capacitors are  substantially  larger  foreign and domestic  companies as listed
below. Although most of them employ older technology  manufacturing methods such
as  thick  film  multi-layer  ceramic  and  wire  wound  technology,  they  have
substantially  greater  resources  than the Company and their  technologies  are
usually  the  accepted  standard  for  existing  applications.  They  also  have
significantly greater sales and distribution  capabilities and typically operate
at lower gross  margins  than the  Company.  Competitors  include:  AVX/Kyocera;
Beckman Industrial Corp.;  KOA-SPEER  Electronics,  Inc.; Matsushita Electronics
Components  Co., Ltd.;  Murata-Erie of North America,  Inc.; ROHM Co., Ltd.; TDK
Corp. of America; and Vishay Intertechnology, Inc.

The  Company   believes  its  competitive   strengths   include  unique  product
performance characteristics, its understanding of customer product requirements,
high quality,  high technology  processing and  manufacturing  facilities,  cost
efficient operations,  dual manufacturing locations,  experienced management and
technical staff, and its strategic alliance with Hitachi Metals.

The Company  believes  its  competitive  weaknesses  include its  relative  size
compared to its  competitors,  its limited  sales,  marketing  and  distribution
capabilities,  still evolving  planning and analysis,  sales, and  manufacturing
infrastructure,  and its limited  engineering  staff and automated design tools,
all of which  result  in  inefficiencies  in the  day-to-day  operations  of the
Company.   The  Company  has  been  significantly   upgrading  its  systems  and
procedures,  enhancing its engineering  tools,  and upgrading its  manufacturing
planning  and control  systems  and  expects to  continue to expend  significant
management and financial resources on this effort.

Research and Development

The Company's  research and  development  (R&D)  programs  consist  primarily of
developing  new  products,  processes  and  materials in response to  identified
market needs.  Additionally,  the Company redesigns products to reduce costs and
expand the capabilities and performance of its existing products.  During fiscal
1997, the Company  focused most of its efforts on introducing the new P/ActiveTM
family of products and in developing next generation base technologies. This has
resulted  in a  new  family  of  devices  with  substantially  higher  frequency
performance.  This  effort  will  continue  in fiscal year 1998 as the family of
products is expanded and refined.  There will be an expanded focus during fiscal
1998  on  the   applications   of  the  P/Active   technologies   to  additional
applications.   Additional  base   technologies  are  also  under   development,
particularly in the areas of enhanced capacitor  technologies and improved diode
technologies.

In late fiscal 1996,  the Company added two senior  engineering  managers to its
staff.  However, the Company was not able to find the number of qualified mid to
entry level engineers it needed to expand the staff.  There is 

                                       9
<PAGE>

significant risk that this problem will continue and that the Company may not be
able to recruit the top engineering talent it requires in the time frame needed.

For the fiscal  years ended March 31, 1997,  and March 31, 1996,  and the fiscal
year nine months  ended March 31, 1995,  the Company  spent $4.2  million,  $3.4
million  and  $2.7  million,  respectively,  on  its  research  and  development
activities.

The Company has a Joint  Development  Agreement  (JDA) with Hitachi  Metals Ltd.
(HML).  Under the terms of the  agreement,  HML  contributes a percentage of the
actual  expenditures  for mutually  agreed upon joint product  development.  The
Company includes HML's contribution toward product development in the Statements
of Operations line labeled  "Technology  related revenues".  The Company expects
this JDA to  continue in fiscal 1998 but that the level of joint R&D may decline
in the 1998 fiscal year and beyond.

Employees/Personnel

As of March 31, 1997,  the Company had 260 full-time  and  part-time  employees,
including  employees  in sales  and  marketing,  engineering  and  research  and
development  activities,  manufacturing,  finance, and administration.  Of these
employees,  153 were  headquartered  in Milpitas,  California  and 107 in Tempe,
Arizona.  CMD's success is highly  dependent on its ability to hire high quality
people.  Although  the Company  has been able to recruit  many  talented  senior
managers in the last couple of years,  its future  progress is tightly linked to
the  ability  to  maintain  and  extend  this  base of  talent.  There can be no
assurance that the required  people will be available when needed,  particularly
in the  difficult  recruiting  environment  which  has  been  characteristic  of
semiconductor and related industries in recent years.

Patents and Licenses

The Company's  policy is to apply for patent  protection  for its novel products
and  manufacturing  processes  where  such  protection  is  warranted.   Process
technologies  are more often  designated as trade secrets.  With respect to mask
works, the Company's policy is to selectively seek copyright protection.

The  Company's  ability  to  compete  may be  affected  by how it  protects  its
intellectual  property.  The Company  believes  that it is  important  to obtain
patent  protection  for its  patentable  inventions,  and to  protect  its trade
secrets.  The Company's trade secrets are protected by having its employees sign
confidentiality  and non-disclosure  agreements as part of its personnel policy.
It is not the Company's  intention to rely solely on protection of  intellectual
property rights to deter competition.  However, when and where appropriate,  the
Company has taken aggressive action to protect its intellectual property rights.
Although the Company continues to implement  protective  measures and intends to
defend its intellectual  property  rights,  there can be no assurance that these
measures will be successful.  

The Company has been granted four patents related to its thin film technologies.
Two patents relate to the Company's  proprietary  resistor,  capacitor and diode
technology. Another patent relates to the Company's proprietary inductor process
technology.  These patents have been  designated  for filing in Japan and Europe
pursuant to the International  Patent  Cooperation  Treaty. The Company has also
been awarded a United States patent for a BiCMOS Track and Hold  Amplifier.  

The Company has filed patent  applications  relating to specific  embodiments of
its proprietary  resistor,  capacitor,  diode, process and product technologies.
During fiscal 1997,  the Company also filed four important new  applications  on
its P/Active(TM)  technology.  

The Company has obtained  approval  from the United States  Copyright  Office to
register certain of its mask works for its passive components  products.  It has
also established trademarks for its P/Active(TM) family of devices.

The Company has granted a non-exclusive,  non-assignable license with respect to
certain of its thin film passive  component  (including mixed active and passive
components, such as resistors, capacitors,  transistors, diodes, and networks of
the same) process and product technology to HML.

                                       10
<PAGE>

As is the case with many companies in the  electronics  industry,  CMD has, from
time to time,  been notified of claims that it may be infringing  certain patent
rights of others.  These claims have been  referred to counsel,  and they are in
various stages of evaluation. If it appears necessary or desirable, CMD may seek
licenses for these intellectual property rights. CMD can give no assurances that
licenses  will be  available,  that the terms  will be  acceptable,  or that the
disputes can be reconciled without litigation in all cases. 

Environmental Issues

The Company is subject to a variety of federal,  state and local  regulations in
connection  with the  discharge  and  storage  of certain  chemicals  during its
manufacturing  processes. The Company believes that it is in compliance with all
such  environmental  regulations.  Industrial  waste  generated at the Company's
facilities  is either  processed  prior to  discharge  or stored in barrels with
double  containment  methods until  removed by an  independent  contractor.  The
Company has obtained all necessary permits for such discharges and storage.  The
Company has  implemented  additional  emission  controls for its Tempe,  Arizona
facility  through the addition of a "burn box" for the controlled  combustion of
flammable materials.

The Company  believes that it is in  compliance  with  applicable  environmental
health and safety regulations.


ITEM 2. PROPERTIES.

The  Company  currently  leases  approximately  40,000  square  feet of  office,
development and manufacturing space including a 10,000 square foot clean room in
Milpitas,  California,  pursuant to an agreement  that expires on June 30, 2002,
that  provides for a current  monthly rent of $29,870 plus  operating  expenses.
This rent amount will be increased 3% annually. The Company also owns 5 acres of
land and a 46,000 square foot  building in Tempe,  Arizona which houses a 16,000
square foot clean room, wafer fabrication, manufacturing, and engineering design
center.

The Company  also  leases  approximately  24,000  square feet of space in Tempe,
Arizona which formerly housed test facilities and warehouse space.  Monthly rent
on the leased Tempe facilities is $13,988 plus operating  expenses,  pursuant to
an agreement that expires in March 2001.  These  facilities are currently  being
subleased  through the term of the lease.  The sublease revenue should cover the
costs of the lease. See Note 12 of Notes to Financial Statements.


ITEM 3. LEGAL PROCEEDINGS.

In October 1994, the Company's Board of Directors  appointed a Special Committee
of  independent  directors to conduct an  investigation  into  possible  revenue
recognition  and other  accounting  irregularities.  The  ensuing  investigation
resulted in the  termination of the Company's  former  Chairman and CEO, Chan M.
Desaigoudar, and several other key management employees.

In January 1995,  the Company  reported that an  investigation  conducted by the
Special  Committee  of the  Board of  Directors  and Ernst & Young LLP had found
widespread  accounting  and  other  irregularities  in the  Company's  financial
results  for the fiscal  year ended June 30,  1994.  On  February  6, 1995,  the
Company filed a Report on Form 10-K/A  restating its results for the fiscal year
ended June 30, 1994. Upon restatement,  the Company reported a net loss of $15.2
million,  or a loss of $1.88 per share, on total revenues of $30.1 million.  The
Company previously had reported earnings of $5.1 million, or $0.62 per share, on
revenues of $45.3 million. The accounting irregularities and related matters are
the subject of securities class actions against the Company,  as well as pending
investigations  into possible  violations of the federal  securities laws by the
Securities and Exchange Commission ("SEC") and the Justice Department.

From August 5, 1994 through  February 16, 1995,  eleven  purported  class action
complaints  were filed against the Company in the United States  District  Court
for the Northern  District of California.  Other  defendants  named in the class
actions include certain of the Company's current and former officers and Coopers
& Lybrand  L.L.P.,  the  Company's  former  outside  auditor.  The class actions
purport to be brought on behalf of  classes  of  shareholders  of the  Company's
common  stock over varying  periods of time  ranging  from  September 7, 1993 to
January 9, 1995.

                                       11
<PAGE>

The gravamen of the allegations against the Company in the class actions is that
it violated Section 10(b) and Rule 10b-5 of the Securities  Exchange Act of 1934
by disseminating false and misleading  financial  statements and reports for the
fiscal  year  ended  June  30,  1993  and June 30,  1994.  The  complaints  seek
unspecified compensatory damages and attorneys' fees, as well as other relief.

On or about February 23, 1995, the Company entered into a proposed settlement of
the class actions,  pursuant to which claims against the Company would have been
released  by  shareholders  who  had  purchased  Company  common  stock  between
September 7, 1993 through  January 9, 1995,  in exchange for the Company  paying
the class $1.0 million and the issuance to the class of one million five hundred
thousand shares (1,500,000), as well as certain non-monetary consideration.  The
issued shares were to be accompanied by a Contingent Value Right (CVR), personal
to the class member, and not transferable,  which would have entitled the holder
thereof to receive the  difference,  if any,  between eight dollars  ($8.00) per
share and the highest average  trading price of the Company's  common stock over
any  consecutive  twenty  trading day period during the three and one half years
following issuance of the shares, if such price were lower than $8.00. The total
cost of the proposed  settlement  was $13.0  million,  which was expensed in the
fiscal year ended March 31, 1995, financial statements.

On February 2, 1996,  Judge Vaughn R. Walker of the United States District Court
for the Northern District of California denied a motion for preliminary approval
of the 1995  proposed  settlement.  On May 2, 1996,  Judge  Walker  ordered this
matter to Judge Eugene F. Lynch for settlement  conferences  which resulted in a
new proposed  settlement  announced by the Company on  September  16, 1996.  All
defendants, other than Mr. Desaigoudar, participated in the new settlement.

On March 7, 1997,  Judge  Walker  orally  granted  plaintiffs'  motion for final
approval of the new  settlement.  On May 20,  1997,  the Court  issued a written
order  certifying the proposed  class for settlement  purposes and approving the
settlement.  Members  of the class  have  thirty  (30) days to appeal  from that
order;  however,  the Company views such an appeal as unlikely,  in light of the
overwhelming acceptance of the settlement.

Generally,  the Company's  contribution towards the new settlement calls for the
payment of  $6,000,000  in cash and the  issuance  of 608,696  new shares of the
Company's  common stock to the class.  Each new share will be  accompanied  by a
Contingent  Value Right (CVR),  personal to the  shareholder,  that entitles the
shareholder  to receive  the  difference  between  $11.50 and the highest 20 day
average trading price of the Company's  common stock (assuming the average price
is less than $11.50) over the three years following the issuance of the CVR. The
CVR expires at the end of the three year period or when the $11.50 price is met,
whichever  occurs first.  In addition,  the Company will pay  $2,000,000  into a
restricted  account as a guarantee for performance  under the CVR. The cash will
be  returned  to  the  Company,  without  interest,  if  and  when  the  CVR  is
extinguished.

The terms of this settlement differ from those negotiated in 1995. However,  the
aggregate amount of consideration to be paid by the Company,  in cash and common
stock,  is  the  same  in  both  settlements.  The  new  settlement  reflects  a
substantial  reduction in the common stock component (from 1,500,000 shares down
to 608,696  shares)  and a  substantial  increase  in cash (from  $1,000,000  to
$6,000,000).  Pursuant to the terms of the agreement,  the Company has deposited
the cash  component of the  settlement in a trust account  controlled by counsel
for the class and has recorded as restricted  cash the  $2,000,000  guarantee of
performance  under the CVR. If the new settlement  does not become final,  these
monies will be returned, with accrued interest, to the Company.

A putative  shareholders  derivative action was filed against certain former and
present  officers and  directors of the Company on May 25, 1995,  in Santa Clara
County Superior Court.  Plaintiff  subsequently agreed to dismiss from the case,
without prejudice, all of the outside directors named in the complaint; the only
current Company officer named as a defendant is the Company's  General  Counsel.
The stay  previously  granted in this matter has lapsed and  discovery  is being
undertaken by the plaintiff.

The Company continues to cooperate with the pending investigations of certain of
its  former  officers  by the  Justice  Department  and  the  SEC.  The  Justice
Department  has advised the Company that it is not currently a target or subject
of the  investigation.  The SEC has taken the position that it is premature,  at
this stage in its investigation,  to discuss the resolution of the investigation
of the Company.

                                       12
<PAGE>

The Company is a defendant or plaintiff in various  other actions which arose in
the normal  course of  business.  In the  opinion of  management,  the  ultimate
disposition  of these  matters  will not have a material  adverse  effect on the
financial  condition  or  overall  trends in the  results of  operations  of the
Company.

The Company believes that, with regard to these matters,  it has, to the best of
its knowledge,  made such  adjustments  to its financial  statements by means of
reserves and expensing the costs  thereof,  that these matters will not have any
additional adverse impact on the Company's financial condition.

See Note 16 of Notes to Financial Statements.


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

Not Applicable.


                                       13
<PAGE>

                                     PART II


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

The  Company's  common  stock trades on the Nasdaq  National  Market tier of The
Nasdaq Stock Market under the symbol "CAMD".

Closing prices by quarter for fiscal 1997 and 1996 are as follows:

                                  Common Stock
                                  ------------

  Fiscal 1997       Q1                Q2               Q3                Q4
  -----------       --                --               --                --
  High              $12 1/2           $9               $7 5/8            $9
  Low               $7 3/8            $4 7/8           $5 1/2            $5 1/16

  Fiscal 1996       Q1                Q2               Q3                Q4
  -----------       --                --               --                --
  High              $6 7/8            $9 7/8           $11               $10
  Low               $4 1/4            $5 7/8           $7 1/2            $7 3/8

Certain debt covenants restrict the payment of dividends. No dividends were paid
in fiscal 1997,  1996, or 1995.  The Company  expects to continue that policy in
the foreseeable  future.  There were approximately  3,000 common shareholders of
record as of March 31, 1997.


ITEM 6.   SELECTED FINANCIAL DATA.
<TABLE>

The selected  financial data (in thousands except per common share  information)
set forth below with  respect to  operating  and balance  sheet data are derived
from the financial statements of the Company.
<CAPTION>

                                                        Twelve Months              Nine Months            Twelve Months
                                                            Ended                     Ended               Ended June 30,
                                                          March 31,                 March 31,              (unaudited)
                                                     1997            1996             1995             1994            1993
                                                 -------------   --------------   -------------    -------------    ------------
<S>                                              <C>              <C>               <C>              <C>              <C>     
  Total revenues                                 $  32,936        $ 39,882          $  23,703        $  30,073        $ 33,007

  Income (loss) before income taxes*             $     704        $  5,119          $ (22,617)       $ (16,634)       $  3,424

  Net income (loss)                              $     704        $  5,119          $ (23,502)       $ (15,227)       $  2,078

  Net income (loss)  per common share            $    0.07        $   0.48          $   (2.75)       $   (1.88)       $   0.35

  Total assets                                   $  38,270        $ 44,928          $  40,688        $  52,097        $ 42,158

  Long-term obligations                          $   8,499        $  7,896          $   9,337        $  11,762        $ 12,771
<FN>

*And  cumulative  effect of change in  accounting in fiscal year 1995 totaling a
loss of $835,000.
</FN>
</TABLE>

The 1994  financial  statements  were  restated in February  1995 as a result of
certain irregularities uncovered in investigations by current management and the
SEC.  The  impact of the  restatement  was to change  net  income  for 1994 from
$5,059,000  or $0.62 per share to a net loss of  ($15,227,000)  or  ($1.88)  per
share.  The  restatement  resulted  in a decrease  of  $20,286,000  in  retained
earnings  at June  30,  1994,  from  $9,581,000  to an  accumulated  deficit  of
($10,705,000).

                                       14
<PAGE>

The Company's former independent accountants, Coopers & Lybrand L.L.P., resigned
as the Company's  auditors in January  1995,  and were replaced by Ernst & Young
LLP. Coopers & Lybrand L.L.P. reports were withdrawn; as a result, the Company's
statements of  operations,  shareholders'  equity,  and cash flows for the years
ended June 30,  1994,  and 1993 are  unaudited.  These  statements  include  all
adjustments which the Company believes necessary for a fair presentation.


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS.

In the  following  discussion,  fiscal 1997 and fiscal 1996 refers to the twelve
months ended March 31, 1997 and 1996, respectively and fiscal 1995 refers to the
nine months ended March 31, 1995. Due to the change in the Company's fiscal year
in 1995 to March 31 from June 30, and the resulting nine month fiscal year ended
March 31, 1995,  management  believes that comparison of absolute dollar amounts
between fiscal 1996 and fiscal 1995 is of limited usefulness.  Accordingly,  the
following  discussion  will compare  dollar  amounts,  quarterly  averages,  and
percentages, as appropriate, to facilitate meaningful comparisons.

RESULTS OF OPERATIONS

Net income for fiscal 1997 was  $704,000  compared  to $5.1  million in 1996 and
compared  with a net loss of $23.5  million for fiscal 1995.  Results for fiscal
1995 were adversely  impacted by recognition of the anticipated cost of settling
certain class action lawsuits,  re-negotiating certain contractual arrangements,
and expenses related to investigation,  litigation and other matters  pertaining
to  previously  announced  financial  irregularities.  See Note 3 and Note 16 of
Notes to Financial Statements.

Product sales for fiscal 1997  averaged  $7.9 million per quarter  compared to a
1996  average of $9.7  million per  quarter and to $7.4  million per quarter for
fiscal 1995. The 18% decrease in average  quarterly product sales in fiscal 1997
compared to fiscal 1996 relates  primarily to reduced  demand from  customers as
inventories  were being  reduced  and also due to lower  shipments  of thin film
products into  customers' new products.  Fiscal 1996 product sales increased 30%
over fiscal 1995 average quarterly product sales primarily due to a 50% increase
in sales of thin film  products and 6% increase in  semiconductor  products,  in
part caused by customers  building  inventories due to long lead times generally
prevailing in the marketplace at that time.

Technology related revenues were $1.4 million in fiscal 1997, compared with $1.2
million in fiscal 1996, and $1.4 million in fiscal 1995. In 1997, 1996, and 1995
technology revenues consisted of cost-sharing payments by HML related to ongoing
joint product development projects.

Cost of sales were 67%, 58%, and 79% of product sales for fiscal 1997, 1996, and
1995,  respectively.  The cost of  sales  percentage  increase  in  fiscal  1997
compared to fiscal 1996  reflects  increased  mix of  packaged  products,  which
include  significant  outside  contractor  costs,  and  reduced  mix of sales of
product in die form  (which  generally  carry a higher  margin),  lower  factory
utilization  due to lower customer  demand and unusual  levels of scrap.  During
1996 the Company  realized  efficiencies  from  increased  sales volume,  and an
increased  mix of  higher  margin  thin film  sales,  primarily  in the  U.S.A.,
compared to a higher mix of lower  margin  foreign  distributor  sales in fiscal
1995.

Research and development  expense averaged $1,045,000 per quarter in fiscal 1997
compared  with  $854,000  and  $895,000  per  quarter  in fiscal  1996 and 1995,
respectively.  The  increase  in fiscal 1997  compared to fiscal 1996  primarily
reflects the increase in development of the P/Active(TM) products in addition to
increased  joint  product  development  projects in  conjunction  with HML.  The
decrease in the research and  development  spending rate in fiscal 1996 compared
with fiscal 1995 primarily reflects decreases in joint development projects with
HML.

Selling, marketing, and administrative expenses in fiscal 1997 were $7.4 million
compared  to  $10.6   million  and  $9.8  million  for  fiscal  1996  and  1995,
respectively.  Fiscal 1997 expenses reflect reductions in legal expenses in part
due to insurance  reimbursements  and fee reductions,  reduced  consulting fees,
reduced  sales  commission,  and reduced  bonus  expense.  Fiscal 1996  expenses
included  $1.1  million  of  unusual  legal  costs  associated   primarily  with
shareholder  litigation.  See Note 16 of Notes to Financial  Statements.  Fiscal
1995 was impacted by $3.6 million of unusual legal, audit,  consulting and other
costs in connection with shareholder  litigation and an ongoing

                                       15
<PAGE>

investigation  of  previously  announced  accounting  irregularities  and  other
matters, and $1.2 million in accounts receivable write downs and reserves.

In fiscal 1995, the Company  expensed $16.3 million of costs associated with the
tentative  settlement of shareholder  class action suits,  re-negotiation of its
relationship with HML, and other costs associated with ongoing investigation and
litigation  related to alleged  violations of securities laws and other matters.
See Note 3 and Note 16 of Notes to Financial Statements.

Interest  expense,  on an average quarterly basis, was $185,000,  $275,000,  and
$311,000 in fiscal 1997, 1996, and 1995,  respectively.  The decline in interest
expense relates primarily to the expiration of equipment leases.

Interest and other income  decreased to $1.4 million in fiscal 1997  compared to
$2.8 million in fiscal 1996 and $1.1 million in fiscal 1995. The higher level of
interest  and other income in fiscal 1996 was  primarily  due to the sale of the
Company's interest in Cell Access for a gain of $1.6 million.

The Company's  effective  tax rate was nil in both fiscal 1997 and 1996.  Income
tax expense of $50,000 in fiscal 1995 is made up of foreign royalty  withholding
taxes.  In fiscal 1995,  the Company had no available tax loss  carrybacks;  the
Company  utilized all available tax loss carrybacks in fiscal 1994. At March 31,
1997, the Company had Federal and State tax loss  carryforwards of approximately
$12.2 million and $12.4 million, respectively. See Note 13 of Notes to Financial
Statements.

The cumulative effect of change in accounting principle on the nine months ended
March 31, 1995, was $835,000. See Note 2 of Notes to Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Unrestricted cash, cash equivalents and short-term  securities were $6.8 million
at March 31, 1997 compared to $22.1 million at March 31, 1996.  Restricted  cash
increased to $2.9 million in fiscal 1997 compared to $0.9 million in fiscal 1996
due to the creation of a $2.0 million  contingent  value right fund  required as
part of the shareholder litigation  settlement.  See Note 4 and Note 16 of Notes
to  Financial  Statements.  Significant  cash  outflows in fiscal 1997  included
capital equipment additions of $6.0 million (including capital lease buy-outs of
$2.1  million),  $5.0  million  paid as part of the  settlement  of  shareholder
litigation,  the aforementioned $2.0 million transferred to restricted cash, and
the payment of previously accrued legal fees totaling $1.4 million.  Significant
cash inflows in fiscal 1996  included  $3.5 million in income tax refunds,  $1.6
million from the sale of the Company's  interest in Cell Access and $1.4 million
from the sale of the Company's interest in a joint venture with HML. Significant
cash  outflows in fiscal 1996  included  capital  expenditures  of $4.4  million
(including equipment lease buy-outs of $0.9 million).  Significant cash outflows
in fiscal 1995 included $2.5 million in refundable  income taxes, a $2.5 million
investment  in a joint  venture  with HML,  a $1.0  million  deposit  towards an
anticipated settlement of certain class actions lawsuits, capital lease buy-outs
of $1.0 million,  and cash expenditures of approximately $2.0 million related to
unusual legal, audit, and consulting costs associated with ongoing investigation
and  litigation  related  primarily  to  the  class  action  lawsuits,   alleged
violations of securities  laws, and other related  matters.  Operating losses in
fiscal 1995 were partially offset by reductions in inventory and receivables.

Cash used in operating  activities for fiscal 1997 was $7.6 million  compared to
cash provided in fiscal 1996 operating  activities of $9.6 million and with cash
used of $8.4  million  for fiscal  1995.  In fiscal  1997  operating  activities
reflected  net income of $704,000,  compared with net income of $5.1 million and
net losses of $23.5 million in fiscal 1996 and 1995, respectively.  The net loss
for fiscal 1995  includes a $12.5  million  non-cash  charge for the issuance of
common stock related to anticipated  settlements  with  shareholders.  In fiscal
1997 the terms of the  settlement  were  amended to  decrease  the common  stock
(non-cash)  component and to increase the cash  component by $5.0 million.  (See
preceding  paragraph).  In fiscal 1997  inventories  increased  $1.9 million due
primarily to reduced lead times on customer orders,  resulting in an increase in
inventory to improve  response times and  secondarily to increase  inventory for
new products. Fiscal 1996 inventories increased $2.2 million, or 46% on a fourth
quarter  sales  increase  of 46% over  the  year-ago  quarter.  In  addition  to
increased sales volume, the increase in inventories at March 31, 1996,  reflects
a higher  mix of  higher  cost  packaged  product  versus  product  in die form.
Inventory  turns were 2.7 at the end of fiscal 1997 compared to 3.7 turns at the
end of fiscal 1996.  Receivables decreased 12% in fiscal 1997 compared to fiscal
1996 due to reduced sales. Days sales outstanding were 54 days at March 31, 1997
compared to 47 days at March 31, 1996,  due to the higher  percentage of product
shipped  towards the end of the 

                                       16
<PAGE>

quarter.  Other assets at March 31, 1997, were $874,000  compared to $585,000 at
March 31, 1996.  The increase  reflects  the  $400,000  receivable  from HML for
fourth quarter  fiscal year 1997  technology  billings  offset by lower interest
receivables due to lower cash,  cash  equivalents,  and short-term  investments.
Other long-term assets were $421,000 at March 31, 1997,  compared to $534,000 at
March 31, 1996.  The decrease is due to the reduction in deposits on leases that
were concluded during fiscal year 1997.

The Company made capital lease payments of $0.9 million,  $2.1 million, and $2.2
million in fiscal 1997,  1996, and 1995,  respectively,  and debt  repayments of
$0.4 million,  $0.5 million,  and $0.4 million in fiscal 1997,  1996,  and 1995,
respectively.

The Company has a $3.0 million line of credit agreement that expires on July 31,
1997.  Under the  terms of the line of  credit,  the  Company  can  borrow up to
$3,000,000,  at prime,  collateralized by short-term  investments managed by the
bank. There were no bank borrowings at March 31,  1997,1996,  and 1995 and there
were no  borrowings  during  fiscal  1997,  1996,  and 1995.  The  Company is in
compliance with its financial covenants.

The Company expects to fund its future liquidity needs through its existing cash
balances, cash flows from operations,  bank borrowings,  and equipment lease and
loan financing  arrangements.  Depending on market conditions and the results of
operations, the Company may pursue other sources of liquidity.

The Company  believes  that it has  sufficient  financial  resources to fund its
operations for at least the next twelve months.


                                       17
<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                   Index to Financial Statements and Schedules

                                                                     Page Number
                                                                     -----------
Financial Statements:

Report of Ernst & Young LLP, Independent Auditors                          19

Balance Sheets                                                             20
        March 31, 1997 and March 31, 1996

Statements of Operations                                                   21
        Year ended March 31, 1997,  March 31, 1996,  
        and nine months ended March 31, 1995

Statements of Shareholders' Equity                                         22
        Year ended March 31, 1997,  March 31, 1996,  
        and nine months ended March 31, 1995

Statements of Cash Flows                                                   23
        Year ended March 31, 1997,  March 31, 1996,  
        and nine months ended March 31, 1995

Notes to Financial Statements                                              24


Financial Statement Schedule:

Schedule 2                 Valuation and Qualifying Accounts               40




                                       18
<PAGE>

                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS



The Board of Directors and Shareholders 
California Micro Devices Corporation


     We have audited the accompanying balance sheets of California Micro Devices
Corporation  as of March  31,  1997 and  1996,  and the  related  statements  of
operations,  shareholders'  equity, and cash flows for the years ended March 31,
1997 and 1996 and the nine months ended March 31, 1995. Our audits also included
the financial statement schedule for the years ended March 31, 1997 and 1996 and
nine months  ended March 31,  1995 listed in the index at Item  14(a)(2).  These
financial  statements  and  schedule  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule 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
misstatements. 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 California  Micro Devices
Corporation as of March 31, 1997 and 1996, and the results of its operations and
its cash flows for the years ended March 31, 1997 and 1996 and nine months ended
March 31, 1995, in conformity  with generally  accepted  accounting  principles.
Also, in our opinion,  the related  financial  statement  schedule for the years
ended  March 31, 1997 and 1996 and the nine months  ended March 31,  1995,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth therein.


                                                            /s/ERNST & YOUNG LLP

San Jose, California
April 29, 1997




                                       19

<PAGE>

                      CALIFORNIA MICRO DEVICES CORPORATION
                                 BALANCE SHEETS
                    (Amounts in Thousands, Except Share Data)

                                                          March 31,    March 31,
                                                            1997         1996
                                                         ------------ ----------
ASSETS:
Current assets:
  Cash and cash equivalents                                $    343    $  1,512
  Short-term investments                                      6,467      20,638
  Accounts receivable, less allowance for doubtful
    accounts of $437 in 1997 and $900 in 1996                 3,938       4,500
  Inventories                                                 8,843       6,940
 Other assets                                                   874         585
                                                           --------    --------
      Total current assets                                   20,465      34,175

  Property and equipment, net                                14,481       9,314
  Restricted cash                                             2,903         905
  Other long-term assets                                        421         534
                                                           --------    --------
      Total assets                                         $ 38,270    $ 44,928
                                                           ========    ========

LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
  Accounts payable                                         $  2,618    $  2,832
  Accrued salaries and benefits                                 795       1,250
  Other accrued liabilities                                   1,457       4,279
  Deferred margin on shipments to distributors                  576       1,039
  Current maturities of long-term debt and capital
     lease obligations                                          745       1,282
                                                           --------    --------
      Total current liabilities                               6,191      10,682

  Long-term debt, less current maturities                     7,315       7,490
  Capital lease obligations less current maturities           1,184         299
  Deferred income                                              --           107
                                                           --------    --------
      Total liabilities                                      14,690      18,578

Shareholders' equity:
  Preferred stock - no par value; shares authorized
  10,000,000;  none issued and outstanding
                                                               --           --
Common stock - no par value;  shares  authorized
  25,000,000;  shares issued and
  outstanding 9,741,124 in 1997
  and 10,306,088 in 1996                                     51,939      55,442

Accumulated deficit                                         (28,359)    (29,092)
                                                           --------    --------
Total shareholders' equity                                   23,580      26,350
                                                           --------    --------

Total liabilities and shareholders' equity                 $ 38,270    $ 44,928
                                                           ========    ========

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

                                       20
<PAGE>

<TABLE>

                      CALIFORNIA MICRO DEVICES CORPORATION
                            STATEMENTS OF OPERATIONS
                  (Amounts in Thousands, Except Per Share Data)
<CAPTION>
                                                      Twelve Months       Twelve Months        Nine Months
                                                          Ended               Ended               Ended
                                                        March 31,           March 31,           March 31,
                                                          1997                 1996               1995
                                                    ----------------     ----------------     -------------
<S>                                                       <C>                <C>                <C>      
Revenues:
  Net product sales                                       $ 31,506           $ 38,642           $ 22,335 
  Technology related revenues                                1,430              1,240              1,368
                                                          --------           --------           --------
    Total revenues                                          32,936             39,882             23,703
                                                                                               
Cost and expenses:                                                                             
  Cost of sales                                             21,255             22,430             17,673
  Research and development                                   4,180              3,417              2,685
  Selling, marketing and administrative                      7,412             10,573              9,763
                                                          --------           --------           --------
    Total costs and expenses                                32,847             36,420             30,121
                                                          --------           --------           --------
                                                                                               
Operating income (loss)                                         89              3,462             (6,418)
                                                                                               
Settlement of shareholder dispute and                                                          
  related matters                                             --                 --               16,336
                                                                                               
Interest expense                                               739              1,100                932
Interest income and other, net                              (1,354)            (2,757)            (1,069)
                                                          --------           --------           --------
Income (loss) before income taxes and cumulative                                               
  effect of change in accounting                               704              5,119            (22,617)
Income taxes                                                  --                 --                   50
                                                          --------           --------           --------
                                                                                               
Income (loss) before cumulative effect of                                                      
  change in accounting                                         704              5,119            (22,667)
Cumulative effect of change in accounting,                                                     
  net of tax                                                  --                 --                  835
                                                          --------           --------           --------
                                                                                               
Net income (loss)                                         $    704           $  5,119           $(23,502)
                                                          ========           ========           ========
                                                                                               
Earnings per share:                                                                            
  Income (loss) before cumulative effect of                                                    
    change in accounting                                  $   0.07           $   0.48           $  (2.65)
  Cumulative effect of change in  accounting                  --                 --                (0.10)
                                                          --------           --------           --------
  Net income (loss) per share                             $   0.07           $   0.48           $  (2.75)
                                                          ========           ========           ========
                                                                                               
Weighted average common shares                                                                 
  and share equivalents outstanding                         10,549             10,645              8,554
                                                          ========           ========           ========
<FN>
                                                                                        
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                       21
<PAGE>

<TABLE>
                      CALIFORNIA MICRO DEVICES CORPORATION
                       STATEMENTS OF SHAREHOLDERS' EQUITY
                    (Amounts in Thousands Except Share Data)

<CAPTION>
                                                     Common Stock
                                                     ------------
                                              Number of                    Accumulated
                                               Shares         Amount         Deficit         Total
                                             -----------    -----------    -----------    -----------

<S>                                           <C>          <C>            <C>            <C>        
Balance, June 30, 1994                         8,530,257    $    42,172    $   (10,705)   $    31,467
  Exercise of stock options                       15,817             89           --               89
  401(k) employer match                           35,330            186           --              186
  Settlement with HML                            100,000            500           --              500
  Proposed settlement with shareholders        1,500,000         12,000           --           12,000
  Unrealized  loss on
    available-for-sale investments, net             --             --              (95)           (95)
  Net loss                                          --             --          (23,502)       (23,502)
                                             -----------    -----------    -----------    -----------

Balance, March 31, 1995                       10,181,404         54,947        (34,302)        20,645

  Exercise of stock options                      124,684            495           --              495
  Unrealized gain on
    available-for-sale investments, net             --             --               91             91
  Net income                                        --             --            5,119          5,119
                                             -----------    -----------    -----------    -----------

Balance, March 31, 1996                       10,306,088         55,442        (29,092)        26,350

  Exercise of stock options                      214,389            885           --              885
  Revision of settlement with shareholders      (891,304)        (5,000)          --           (5,000)
  Employee Stock Purchase Plan                   108,951            592           --              592
  Stock award                                      3,000             20           --               20
  Unrealized gain on
    available-for-sale investments, net             --             --               29             29
  Net income                                        --             --              704            704
                                             -----------    -----------    -----------    -----------

Balance, March 31, 1997                        9,741,124    $    51,939    $   (28,359)   $    23,580
                                             ===========    ===========    ===========    ===========

<FN>

The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
                                       22

<PAGE>
<TABLE>
                      CALIFORNIA MICRO DEVICES CORPORATION
                            STATEMENTS OF CASH FLOWS
                             (Amounts in Thousands)
<CAPTION>
                                                                                Twelve          Twelve          Nine 
                                                                                Months          Months         Months
                                                                                Ended           Ended           Ended   
                                                                               March 31,       March 31,      March 31, 
                                                                                 1997           1996            1995  
                                                                             --------------  -------------   -------------
<S>                                                                             <C>            <C>            <C>      
Cash flows from operating activities:
  Net income /(loss)                                                            $    704       $  5,119       $(23,502)
  Adjustments to reconcile net income to net cash provided                                                   
    by operating activities:                                                                                 
    Depreciation and amortization                                                  2,191          1,763          1,362
    Issuance of common stock - settlements                                          --             --           12,500
    Issuance of cash - settlements                                                (5,000)          --             --
    Issuance of common stock - 401(k) match                                         --             --              186
    Net (increase)/decrease in inventories                                        (1,903)        (2,193)           430
    Net (increase)/decrease in accounts receivable                                   562         (1,297)         3,105
    Net (increase)/decrease in refundable income taxes and other                    (289)         4,860         (4,482)
    Net increase/(decrease) in trade accounts payable and other                                              
      current liabilities                                                         (3,491)         1,299            638
    Net decrease in other long-term assets                                           113            145            158
    Increase/(decrease) deferred margin on distributor sales                        (463)          (118)         1,157
                                                                                --------       --------       --------
  Net cash provided by/(used in) operating activities                             (7,576)         9,578         (8,448)
                                                                                --------       --------       --------
                                                                                                             
Cash used in investing activities:                                                                           
  Securities purchases                                                            (3,940)       (25,833)       (14,297)
  Securities sales                                                                18,140         13,690          8,798
  Capital expenditures                                                            (6,011)        (4,412)          (325)
  Net change in restricted cash                                                   (1,998)            84            226
                                                                                --------       --------       --------
Net cash provided by/(used in) investing activities                                6,191        (16,471)        (5,598)
                                                                                --------       --------       --------
                                                                                                             
Cash flows used in financing activities:                                                                     
  Net repayments of capital lease obligations                                       (910)        (2,107)        (2,182)
  Repayments of debt                                                                (372)          (539)          (393)
  Proceeds from issuance of common stock                                           1,498            495             89
                                                                                --------       --------       --------
Net cash provided by/(used in) financing activities                                  216         (2,151)        (2,486)
                                                                                --------       --------       --------
Net decrease in cash and cash equivalents                                         (1,169)        (9,044)       (16,532)
Cash and cash equivalents at beginning of period                                   1,512         10,556         27,088
                                                                                --------       --------       --------
Cash and cash equivalents at end of period                                      $    343       $  1,512       $ 10,556
                                                                                ========       ========       ========
                                                                                                             
Supplemental disclosures of cash flow information:                                                           
    Interest paid                                                               $    896       $  1,068       $  1,194
    Income taxes paid/(refund)                                                  $    (60)      $ (3,757)      $  2,730
Supplemental disclosures of non-cash investing and financing activities:                                     
    Capital expenditures financed through capital lease obligations             $  1,455       $   --         $    301
                                                                                                         
<FN>

The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
                                       23
<PAGE>

                      CALIFORNIA MICRO DEVICES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


1.      THE COMPANY

The Company designs, develops,  manufactures and markets a line of specialty and
precision passive electronic components to Original Equipment  Manufacturers and
distributors who need higher performance,  higher density, lower cost and unique
functionality.  The  Company  uses its  silicon-based  thin film  materials  and
process  technology  to  integrate  multiple  passive  elements  onto  a  single
integrated circuit.

The Company also designs, manufactures and sells certain semiconductor products,
primarily analog and mixed signal products for the telecommunications  industry.
These sales are a significant portion of the Company's business.

The Company's  products are marketed  primarily to customers in the computer and
computer  peripherals,   wireless   communications,   networking,   and  medical
industries.


2.      SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company changed its fiscal year in 1995 to March 31 from June 30,  resulting
in a nine month fiscal year ended March 31, 1995. In the following presentation,
fiscal 1997 and fiscal 1996 refer to the twelve  months ended March 31, 1997 and
1996, and fiscal 1995 refers to the nine months ended March 31, 1995.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with a maturity date of
three  months  or less at the  date of  purchase  to be cash  equivalents.  Cash
equivalents  generally  consist of corporate bonds,  commercial paper, and money
market funds.

Short-term Investments

The  Company  invests its excess cash in high  quality  instruments.  All of the
Company's marketable  investments are classified as  available-for-sale  and the
Company  views its  available-for-sale  portfolio  as  available  for use in its
current operations.  Accordingly,  the Company has classified all investments as
short-term,  even though the stated  maturity  date may be one year or more past
the current balance sheet date.

Available-for-sale  securities are stated at fair market value,  with unrealized
gains and losses,  net of tax, reported as a component of shareholder's  equity.
The cost of securities  sold is based upon the specific  identification  method.
Realized  gains  and  losses  and  declines  in value  judged  to be other  than
temporary are included in interest income and other (net).

Inventories

Inventories are stated at the lower of cost or market.  Cost is determined using
the first-in, first-out (FIFO) basis.

                                       24
<PAGE>

Property and Equipment

Property and equipment are stated at cost.  Depreciation  and  amortization  are
computed using the straight-line method over the shorter of the estimated useful
lives of the assets,  or the  remaining  lease term.  Estimated  useful lives of
assets are as follows:
                        Building                                40 years
                        Machinery and equipment              3 - 7 years
                        Leasehold improvements                   4 years
                        Furniture and fixtures                   7 years

Revenue Recognition

Revenue from product sales to end user  customers is recognized  upon  shipment.
Revenue  under  license and  technology  agreements  is recognized as technology
related sales upon completion of the appropriate terms of the agreement. Revenue
under product  development  and engineering  design  agreements is recognized as
technology related sales using the percentage-of-completion method. This revenue
is measured by  engineering  estimates  of work  performed  compared  with total
estimated requirements specified for particular projects.

Effective July 1, 1994, the Company  changed its accounting  method to recognize
revenue  on  shipments  to  distributors  only  upon  the  final  sales  by  the
distributor  to OEMs or other end  users.  Previously,  the  Company  recognized
revenue at the time of shipment to the distributor. Distributor agreements allow
the  distributors  certain  rights of  return  and  price  protection  on unsold
merchandise.  As a result,  the Company  believes that  deferral of  distributor
sales  and  related  gross  margins  until  the  merchandise  is  resold  by the
distributors  results in a more  meaningful  measurement  of operations and is a
preferable method of accounting for such shipments.

The impact of the accounting change on retained earnings at June 30, 1994, would
have been a reduction of approximately  $835,000. This amount was expensed as of
July 1, 1994.  Pro forma data giving effect to the change in accounting  has not
been presented for periods prior to June 30, 1994, as that information cannot be
calculated.

Common Stock

On December 16, 1996, the Company reduced the previously issued 1,500,000 shares
of  common  stock  being  held in  trust,  in  connection  with the  anticipated
settlements  of  shareholder  class action,  to 608,696  shares.  The 1,5000,000
shares  have been  included  in shares  outstanding  and in the  computation  of
weighted average common and common share equivalents  outstanding beginning with
their issuance in May 1995 until December 16, 1996. The 608,696 shares have been
included in shares outstanding and in the computation of weighted-average shares
and share equivalents  outstanding since December 17, 1996. See Note 16 to Notes
to Financial Statements.

Net Income (Loss) Per Share

Net income per share for each  period is  computed  using the  weighted  average
number of common shares and dilutive common share equivalents outstanding during
the periods. Net loss per share is computed using the weighted average number of
common shares outstanding during the periods.

Employee Stock Plans

The Company  accounts for its stock option plans and its employee stock purchase
plan in accordance  with the  provisions of the  Accounting  Principles  Board's
Opinion No. 25 (APB 25),  "Accounting  for Stock Issued to  Employees." In 1995,
the Financial  Accounting  Standards  Board  released the Statement of Financial
Accounting   Standard   No.  123  (SFAS  123),   "Accounting   for  Stock  Based
Compensation."  SFAS 123 provides an  alternative to APB 25 and is effective for
fiscal years  beginning  after December 15, 1995. As allowed under SFAS 123, the
Company continues to account for its employee stock plans in accordance with the
provision of APB 25 and has adopted the  disclosure  provisions of SFAS 123. See
Note 15 of Notes to Financial Statements.

                                       25
<PAGE>

Adoption of FASB 128

In February 1997, the Financial  Accounting Standards Board issued Statement No.
128,  Earnings per Share,  which is required to be adopted on December 31, 1997.
At that time,  the Company will be required to change the method  currently used
to compute  earnings per share and to restate all prior  periods.  Under the new
requirements for calculating  primary earnings per share, the dilutive effect of
stock options will be excluded.  The impact of Statement 128 on the  calculation
of primary  earnings  has no material  impact for fiscal 1997 and an increase of
$0.03 for fiscal 1996.  The impact of Statement 128 on the  calculation of fully
diluted earnings per share for fiscal 1997 and fiscal 1996 is not material.

Use of Estimates

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.

Reclassifications

Certain amounts  presented in prior years have been reclassified to conform with
current year presentation.


3.      HITACHI METALS, LTD.

The Company has a Joint  Development  Agreement  (JDA) with Hitachi  Metals Ltd.
(HML) , a  significant  shareholder.  Under  the  terms  of the  agreement,  HML
contributes a percentage  of the actual  expenditures  for mutually  agreed upon
joint  product  development.  The Company  includes  HML's  contribution  toward
product  development  in the Statements of Operations  line labeled  "Technology
related revenues".

In May 1995, HML and the Company  concluded  negotiations  to amend the terms of
its  contractual  arrangements  with HML.  The new  agreement  provided  for the
issuance of 100,000  shares of additional  stock (valued at $5.00 per share) and
the  payment of $50,000 in cash to HML.  The License  and  Technical  Assistance
Agreement was adjusted by the forgiveness of a $500,000 receivable from HML, and
by a commitment  by CMD to provide a certain  amount of training,  tooling,  and
promotional materials at CMD's expense. In addition,  HML acquired the Company's
interest in the  Philippine  joint venture at a purchase  price of $1.4 million.
The aggregate cost of these contractual amendments,  approximately $2.4 million,
is included in "Settlement of  shareholder  dispute and related  matters" on the
March 31, 1995, Statement of Operations.

Sales to Hitachi Metals, Ltd., and its subsidiary,  Hitachi Kinzoku Shoji, Ltd.,
were $2.1 million,  $1.2 million and $0.4 million in fiscal 1997, 1996 and 1995.
Trade accounts  receivable from all HML entities at March 31, 1997 and 1996 were
$117,000 and $446,000, respectfully.


                                       26

<PAGE>

4.      CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

The following is a summary of cash, cash  equivalents and marketable  securities
at March 31, 1997 and March 31, 1996 respectively (amounts in thousands):

                                                           March 31,   March 31,
                                                             1997        1996
                                                             ----        ----
Cash equivalents
  Money market funds                                        $ 1,370      $   751
  Commercial paper and repurchase agreements                    973          761
Less:
  Amount classified as restricted cash in
   connection with class action settlement*                  (2,000)        --
                                                            -------      -------
Total cash equivalents                                      $   343      $ 1,512
                                                            =======      =======
Short-term investments:
  Auction rate preferred funds floating rate notes          $  --        $ 7,900

  U. S. Treasuries & U.S. Government agencies                 5,523       11,721
  Corporate bonds                                               944        1,017
                                                            -------      -------
Total short-term investments                                $ 6,467      $20,638
                                                            =======      =======
*See Note 16 of Notes to Financial Statements 

<TABLE>

The  following is a summary of  available-for-sale  securities at March 31, 1997
and 1996 (amounts in thousands):
<CAPTION>
                                                                                  Gross          Gross        Estimated
                                                                                Unrealized    Unrealized        Fair
                                                                    Cost          Gains         Losses          Value
                                                                    ----          -----         ------          -----
<S>                                                                 <C>          <C>            <C>            <C>     
March 31, 1997:
  Commercial paper and repurchase agreements                        $   973      $  --          $  --          $   973 
  U.S. Treasuries & U.S. government agencies                          5,503           20           --            5,523
  Corporate bonds                                                       940            4           --              944
                                                                    -------      -------        -------        -------
    Total                                                           $ 7,416      $    24        $  --          $ 7,440
                                                                    =======      =======        =======        =======
                                                                                                               
March 31, 1996:                                                                                                
  Commercial paper and repurchase agreements                        $   761      $  --          $  --          $   761
  U.S. Treasuries & U.S. government agencies                         11,714           45            (38)        11,721
  Corporate bonds                                                     1,028         --              (11)         1,017
                                                                    -------      -------        -------        -------
    Total debt securities                                            13,503           45            (49)        13,499
                                                                                                               
  Auction rate preferred funds and floating rate notes                7,900         --             --            7,900
                                                                    -------      -------        -------        -------
    Total                                                           $21,403      $    45        $   (49)       $21,399
                                                                    =======      =======        =======        =======
</TABLE>
                                                                             
Of the 1997  securities  listed  above,  $3.5  million  of debt  securities  (at
estimated  fair market  value)  mature  within one year and $3.9 million  mature
between one and two years.  Realized gains and losses on the sales of securities
are reported as other income and were not significant  for all years  presented.
See Note 5 of Notes to Financial Statements.


5.      CONCENTRATIONS OF CREDIT RISK

The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of temporary cash investments and trade receivables.

The Company places its temporary cash investments and short-term securities with
substantial  financial  service  institutions.  See Note 4 of Notes to Financial
Statements.

The significant portion of the Company's sales are to customers whose activities
are related to  computer  and  computer  peripherals,  wireless  communications,
networking, medical, and consumer electronics industries, 

                                       27
<PAGE>

including  some who are  located in foreign  countries.  The  Company  generally
extends credit to these customers and,  therefore,  collection of receivables is
affected by the aforementioned  industries and economic influences of customers'
geographic  locations.  However,  the Company monitors  extensions of credit and
requires collateral, such as letters of credit, whenever deemed necessary.


6.      CONCENTRATION OF OTHER RISKS

Markets

The Company markets its products to high-technology industries, such as personal
computers,  telecommunications,  and networking, that are characterized by rapid
technological  change,   intense  competitive  pressure,   and  volatile  demand
patterns.  Most of the systems  into which the  Company's  products are designed
have short life cycles. As a result,  the Company requires a significant  number
of new design wins on an ongoing basis to maintain and grow revenue.

Customers

Generally, the Company's sales are not subject to long-term contracts but rather
to  short-term  releases  of  customer's  purchase  orders,  most of  which  are
cancelable  on  relatively  short  notice.  The  timing  of these  releases  for
production as well as custom design work are in the control of the customer, not
the  Company.  Because of the short life  cycles  involved  with its  customers'
products,  the order  pattern  from  individual  customers  can be erratic  with
significant  accumulation and  de-accumulation of inventory during phases of the
life cycle.  For these  reasons,  the  Company's  backlog and bookings as of any
particular  date may not be  representative  of actual sales for any  succeeding
period.

Inventories

The Company records inventory  reserves on a part-by-part basis to appropriately
consider  excess  inventory  levels and obsolete  inventory based on backlog and
demand,  and to consider  reductions in sales price.  The Company makes specific
provisions for the risk of inventory  obsolescence  based on backlog and demand.
However,  due to the  volatility  of  demand,  and  the  fact  that  many of the
Company's products are specific to individual  customers,  backlog is subject to
revisions and cancellations and anticipated demand is constantly changing, which
may require additions to the reserves in the future.

Manufacturing

Manufacturing  risks include  errors in  fabrication  processes,  defects in and
supply of raw  materials,  as well as other  factors which can affect yields and
costs.   The  Company  intends  to  eventually   convert  from  five-inch  wafer
manufacturing processes to six-inch.  Currently, because five inch wafers are no
longer considered to be economically  viable for most  applications,  there is a
risk of supply of five-inch  wafers as vendors direct their  resources to larger
wafer sizes.  Additionally,  there is a risk of disruptions to the manufacturing
processes as upgrading of facilities and equipment are attempted.

Subcontractors

The Company uses  subcontractors in Asia,  primarily  Thailand and the Malaysia,
for assembly,  packaging,  and test of most of its product. This common industry
practice is subject to political and economic risks and industry  volatility has
occasionally   resulted  in  shortages  of  subcontractor   capacity  and  other
disruptions to supply.

                                       28
<PAGE>
7.      INVENTORIES

Inventories consist of the following (amounts in thousands):

                                    March 31, March 31,
                                      1997      1996
                                      ----      ----
                    Raw materials     $1,316   $1,093
                    Work-in-process    3,821    3,949
                    Finished goods     3,706    1,898
                                      ------   ------
                                      $8,843   $6,940
                                      ======   ======



8.      PROPERTY AND EQUIPMENT

Property and equipment consist of the following (amounts in thousands):

                                                March 31,       March 31,
                                                  1997            1996
                                                  ----            ----
Land                                             $   137         $   137
Buildings                                          3,030           3,030
Machinery, equipment and tooling                  20,017          15,070
Leasehold improvements                               685             495
Furniture and fixtures                               360             329
                                                 -------         -------
                                                  24,229          19,061
Less accumulated depreciation and amortization     9,748           9,747
                                                 -------         -------
                                                 $14,481         $ 9,314
                                                 =======         =======
                                                         

9.      SHORT-TERM BORROWINGS

The Company has a bank line of credit,  which  expires July 31, 1997.  Under the
terms of the line of credit, the Company can borrow up to $3,000,000,  at prime,
collateralized by short-term investments managed by the bank. There were no bank
borrowings during fiscal 1997, 1996 and 1995.


10.     FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company has evaluated the estimated fair value of financial instruments. The
amounts reported as cash and cash equivalents,  accounts receivable,  short-term
borrowings, accounts payable, and accrued expenses approximate fair value due to
their  short-term  maturities.  The fair value for long-term  debt was estimated
using  discounted  cash flow  analysis  based on  estimated  interest  rates for
similar types of borrowing arrangements.

The carrying  amounts and estimated fair values of the Company's  long-term debt
are as follows (amounts in thousands):
                                                      Carrying        Fair
                                                      Amount          Value
                                                      ------          -----
         Long-term debt (excluding capital leases)     $ 7,490       $ 7,889


                                       29

<PAGE>


11.     LONG-TERM DEBT

Long-term debt consists of the following (amounts in thousands):
                                                             March 31, March 31,
                                                                1997     1996
                                                                ----     ----

Notes payable at 8.6%, due through August 1, 1996              $ --     $  212
Industrial revenue bonds at 10.5%, due through March 1, 2018    7,430    7,535
Industrial revenue bonds at 12%, due through March 1, 1998         60      115
                                                               ------   ------
                                                                7,490    7,862
Less current maturities                                           175      372
                                                               ------   ------
                                                               $7,315   $7,490
                                                               ======   ======

Notes payable are collateralized by certain machinery and equipment.  Industrial
revenue  bonds are  collateralized  by a lien on all land and  buildings  of the
Company in Tempe,  Arizona,  and certain equipment acquired with the proceeds of
the bonds and require certain minimum annual sinking fund payments  ranging from
$175,000 in fiscal 1998 to $780,000 in fiscal  2018.  The Company may prepay the
10.5%  Industrial  Revenue  Bond by  redeeming  all or  part of the  outstanding
principal amounts on or after March 1, 1998, with penalties declining from 2% on
March 1, 1998, to zero at March 1, 2000. At March 31, 1997, cash of $903,000 was
held in  sinking  fund  trust  accounts  of  which  $800,000  is to be used  for
principal and interest payments in the event of default by the Company.

The  Industrial   Revenue  Bonds  and  certain  lease  agreements   require  the
maintenance of various financial  covenants  including certain minimum levels of
net  worth,  current  ratio,  quick  ratio,  ratio  of debt to net  worth,  debt
coverage,  and debt to working capital ratio.  The Company is in compliance with
these covenants at March 31, 1997. As a result of these covenants, the Company's
ability to pay dividends is restricted.

Future  maturities of long-term debt at March 31, 1997, are as follows  (amounts
in thousands):

                      1998                           $   175
                      1999                               130
                      2000                               140
                      2001                               155
                      2002                               170
                      2003 and thereafter              6,720
                                                      ------
                                                      $7,490
                                                      ======

12.     LEASE COMMITMENTS

Operating Leases

The Company leases  certain  manufacturing  facilities  under  operating  leases
expiring  in 2001 and 2002.  During  1997,  the  Company  had  sublet the leased
facility in Arizona for the remaining  period of the lease.  The rents  received
should equal the amounts owed by the Company during the remaining  lease period.
Future gross minimum lease payments,  under non-cancelable operating leases, for
the years ended March 31 are as follows (amounts in thousands):

                      1998                                $  545
                      1999                                   552
                      2000                                   563
                      2001                                   580
                      2002                                   414
                      2003 and thereafter                    104
                                                          ------
                                                          $2,758
                        Sublease receipts                   (704)
                                                          ------
                                                          $2,054
                                                          ======

Rent expense net of sublease  income was  $524,352,  $478,427 and  $1,393,331 in
fiscal 1997, 1996, and 1995, respectively.

                                       30
<PAGE>

Capital Leases

Obligations   under   capital   leases  are  at  interest   rates  ranging  from
approximately  7%  to  10%,   depending   primarily  upon  the  purchase  option
arrangements  at the end of the lease term, and are due in monthly  installments
through April 2002. Future minimum lease payments,  under capital leases for the
years ended March 31, are as follows (amounts in thousands):

        1998                                                          $   704
        1999                                                              423
        2000                                                              406
        2001                                                              405
        2002                                                              145
                                                                      ---------
        Total minimum lease payments                                    2,083
        Less amount representing interest                                 329
                                                                      ---------
        Present value of net minimum lease payments                     1,754
        Less current portion                                              570
                                                                      ---------
                                                                       $1,184
                                                                      =========


Machinery  and  equipment  under  capital  leases  are as  follows  (amounts  in
thousands):

                                             March 31,           March 31,
                                               1997                1996
                                               ----                ----
       Cost                                 $  3,902            $  4,745
       Less accumulated amortization             973               2,893
                                            ------------        ------------
                                            $  2,929            $  1,852
                                            ============        ============

13.     INCOME TAXES

Due to the  availability of tax loss  carryforwards,  there was no provision for
income taxes for the periods ended March 31, 1997 and 1996.  For the nine months
ended March 31, 1995,  there was a $50,000 current  provision for foreign income
taxes.
<TABLE>

A reconciliation  of the Company's  effective tax rate to the federal  statutory
rate is as follows:
<CAPTION>

                                     Twelve Months        Twelve Months        Nine Months
                                         Ended                Ended               Ended
                                       March 31,            March 31,           March 31,
                                          1997               1996                  1995
                                      -------------      -------------         --------------
<S>                                       <C>                 <C>                  <C>  
Federal statutory tax                      34%                 34%                  (34)%
Losses with no current benefit              -                   -                    34
Utilization of loss carryforward          (34)                (34)                    -
                                      -------------      -------------         --------------
Effective income tax rate                   0%                  0%                    0%
                                      =============      =============         ==============
</TABLE>

At March 31, 1997, and 1996 the Company had federal and state net operating loss
carryforwards  of  approximately  $12,200,000 and $12,400,000  respectively.  In
addition,  the  Company  had  federal and  California  credit  carryforwards  of
approximately $500,000 and $87,000 respectively. These carryforwards will expire
at various dates  beginning in 2008 through  2011,  except for certain state net
operating  losses of  approximately  $4,800,000  which  expire from 1999 through
2001.

                                       31
<PAGE>
Deferred  income taxes reflect the tax effects of net operating  loss and credit
carryforwards and temporary  differences  between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company's deferred tax assets are as
follows (amounts in thousands):

                                                 March 31,     March 31,
                                                   1997          1996
                                                   ----          ----
Deferred tax assets:
  Net operating loss carryforwards               $ 4,895        $ 3,848 
  Tax credit carryforwards                           560            560
  Inventory reserves                               2,506          2,624
  Bad debt reserves                                  233            442
  Other non-deductible accruals and reserves         860          1,832
                                                 -------        -------
Total deferred tax assets                          9,054          9,306
  Less valuation allowance                        (9,054)        (9,306)
                                                 -------        -------
Net deferred tax asset                           $  --          $   --
                                                 =======        =======
                                                                
                                                            
The valuation  allowance  decreased by $252,000  during the year ended March 31,
1997.  Approximately $430,000 of the valuation allowance for deferred tax assets
relates to benefits of stock option deductions  which, when recognized,  will be
directly  allocated  to common  stock.  The above  deferred  tax  assets and net
operating loss  carryforwards  do not reflect a tax benefit  associated with the
shareholder  settlement.  See  Note 16 of Notes to  Financial  Statements.  Such
benefit will be determined when the settlement proceeds are distributed.


14.  INTEREST INCOME AND OTHER, NET
<TABLE>

Interest income and other, net consists of (amounts in thousands):
<CAPTION>

                                           Twelve Months          Twelve Months          Nine Months
                                               Ended                  Ended                 Ended
                                             March 31,              March 31,             March 31,
                                                1997                   1996                  1995
                                         -------------------    -------------------    -----------------
<S>                                         <C>                     <C>                   <C>    
Interest income                             $1,024                  $1,194                $   870
Other income                                   330                   1,563                    199
                                            ------                  ------                -------
                                            $1,354                  $2,757                $ 1,069
                                            ======                  ======                =======
</TABLE>

Interest  income  reflects the amounts  earned from  investments  in  short-term
securities.  Other income for fiscal 1997 includes $184,000 from the sale of the
final portion of the Company's interest in Cell Access.  Other income for fiscal
1996 reflects the $1.6 million realized from the sale of the Company's  interest
in Cell  Access.  Fiscal 1995 other income  includes  litigation  settlement  of
$163,000.

15.     EMPLOYEE BENEFIT PLANS

401(K) Savings Plan

The Company  maintains a 401(K) Savings Plan covering  substantially  all of its
employees.  Under the plan, eligible employees may contribute up to 15% of their
base  compensation to the plan with the Company matching at a rate of 50% of the
participants'  contributions  up to a maximum of 3% of their base  compensation.
Participants'  contributions  are  fully  vested  at all  times.  The  Company's
contributions vest incrementally over a two year period.  Prior to January 1995,
the  Company's  contributions  were  made by  issuance  of  common  stock of the
Company;  after January 1, 1995,  contributions  have been made in cash.  During
fiscal 1997,  1996,  and 1995,  the Company  expensed  $136,000,  $163,000,  and
$186,000, respectively, relating to its contributions under the plan.

                                       32
<PAGE>

Nonqualified Deferred Compensation Plan

In April 1997, the Company implemented a nonqualified deferred compensation plan
for the benefit of eligible  employees.  This plan is designed to permit certain
discretionary  employer  contributions in excess of the tax limits applicable to
the  401(k)  plan and to permit  employee  deferrals  in excess of  certain  tax
limits. As of March 31,1997, no Company expense was taken.

Stock Option Plans

The 1995 Stock  Option Plan  amended as of July 26, 1996 (the "1995  Plan"),  is
administered  by a stock  option  committee  consisting  of not  less  than  two
directors who, during the one year period prior to service as  administrator  of
the plan,  shall not have been granted or awarded  equity  securities  except as
permitted  under Rule 16b-3 under the Securities  Exchange Act of 1934. The 1995
Plan  provides for options for the purchase of shares to be granted to employees
and certain  consultants  to the Company.  The 1995 Directors Plan amended as of
July 26, 1996 (the  "Directors  Plan"),  is  administered by not less than three
members of the Board and the amount of shares granted to the directors  shall be
a fixed amount on an annual basis, as approved by the shareholders.

Under the Company's 1995 Plan, 1,850,614 shares of common stock are reserved for
issuance.  The 1995 Plan  provides  for  issuance  of options to  employees  and
consultants  at prices not less than 85% of fair market value for shares  issued
under a non-qualified stock option agreement.  Options may also be issued to key
employees for not less than 100% of fair market value for shares issued under an
incentive stock option agreement.

Under the  Directors  Plan,  166,875  shares of common  stock are  reserved  for
issuance.  The 1995 Directors  Plan provides for a fixed issuance  amount to the
directors  at prices not less than 100% of the fair  market  value of the common
stock at the time of the grant.

In addition  to the two 1995 plans,  the Company has a plan which was adopted in
1981 (The  Employee  Incentive  Stock Option  Plan),  and another plan which was
adopted in 1987 (The 1987  Stock  Option  Plan)  both of which are still  active
although no new options are being issued under these plans. These plans provided
for  the  issuance  of  1,500,000   and   2,500,000   shares  of  common  stock,
respectively. Under these plans, the Company has granted incentive stock options
and non-qualified options to designated employees, officers, and directors.

Generally,  options  under the plans  become  exercisable  and vest over varying
periods ranging up to five years as specified by the Board of Directors.  Option
terms do not exceed  ten years  from the date of the grant and all plans  except
the 1981 Employee Incentive Stock Option Plan (the "1981 Plan") expire within 20
years of date of adoption.  The 1981 Plan may be  terminated  at any time by the
Board of Directors.  No option may be granted during any period of suspension or
after termination of any plan. Unexercised options expire upon, or within, three
months  of  termination  of   employment,   depending  upon  the   circumstances
surrounding termination.
<TABLE>

The following is a summary of stock option activity and related information:
<CAPTION>

                                         1997                           1996                            1995
                             ------------------------------ ------------------------------  ------------------------------
                                           Weighted-Average               Weighted-Average               Weighted-Average
                                Options     Exercise Price    Options      Exercise Price    Options      Exercise Price
                                -------     --------------    -------      --------------    -------      --------------
<S>                           <C>             <C>            <C>             <C>            <C>               <C>    
Options:
  Outstanding at
    beginning of year         1,841,864       $5.7560        1,603,195       $ 5.2831       1,433,091         $7.5603
  Granted                       515,517       $6.7402          759,700       $ 8.2655       1,262,175         $4.1250
  Exercised                    (214,389)      $4.1285         (124,684)      $ 3.9663         (15,817)        $5.6611
  Canceled                     (110,546)      $6.4146         (396,347)      $10.4849      (1,076,254)        $7.4495
                              ---------       -------        ---------       --------       ---------         -------
  Outstanding at
    end of year               2,032,446       $6.1255        1,841,864       $ 5.7560       1,603,195         $5.2831
                              =========       =======        =========       ========       =========         =======
</TABLE>

                                       33
<PAGE>
<TABLE>

The following table summarizes  information  about options  outstanding at March
31, 1997:
<CAPTION>
                                                  Options Outstanding                          Options Exercisable
                                  ----------------------------------------------------  -----------------------------------
                                                   Weighted-Average
                                                      Remaining
                                                     Contractual     Weighted-Average                     Weighted-Average
                                       Number           Life             Exercise           Number           Exercise 
Range of Exercise Prices            Outstanding        (Years)             Price          Exercisable         Price
-------------------------------   ---------------------------------- -----------------  ----------------- -----------------
<S>                                <C>                   <C>             <C>                <C>              <C>    
      $2.0000 - $3.6250                14,165            1.82            $3.5296             14,165          $3.5296
      $3.9300 - $3.9300               725,879            7.70            $3.9300            345,730          $3.9300
      $4.1250 - $6.0000               467,502            7.91            $5.5536            114,498          $4.9271
      $7.5000 - $8.5000               431,450            9.06            $8.0115             61,655          $8.2449
      $8.6250 - $12.7500              393,450            8.27            $8.8810            143,255          $8.9053
                                    ---------            ----            -------            -------          -------
      $2.0000 - $12.7500            2,032,446            8.11            $6.1255            679,303          $5.5305
                                    =========            ====            =======            =======          =======

</TABLE>

Employee Stock Purchase Plan

The 1995 Employee Stock Purchase Plan (the "Purchase Plan") is available for all
full-time  employees  possessing less than 5% of the Company's common stock on a
fully  diluted  basis.  The  Purchase  Plan  provides  for the issuance of up to
250,000  shares at 85% of the fair market  value of the common  stock at certain
defined  points in the plan  offering  periods.  Purchase of the shares is to be
through  employees'  payroll  deductions  and may not exceed 15% of their  total
compensation.  The Purchase  Plan  terminates on February 9, 2005, or earlier at
the  discretion  of the  Company's  Board of  Directors.  There  were no  shares
purchased  under the  Purchase  Plan at March 31,  1996.  As of March 31,  1997,
141,049 shares are reserved for issuance.

The following is a summary of stock purchased under the plan:

                                                 1997                1996
                                             --------------      -------------
Aggregate purchase price                       $644,427               -
Shares purchased                                108,951               -
Employee participants as of March 31                150              139

Stock-Based Compensation

As permitted  under Statement of Financial  Accounting  Standards No. 123 ("SFAS
123"),"Accounting  for  Stock-Based  Compensation,"  the  Company has elected to
follow Accounting  Principles Board Opinion No. 25, "Accounting for Stock Issued
to  Employees"  ("APB  25"),  and related  Interpretations,  in  accounting  for
stock-based awards to employees.  Under APB 25, the Company generally recognized
no compensation expense with respect to such grants.

Pro forma  information  regarding  net income  (loss) and net income  (loss) per
share is required by SFAS 123 for grants after April 1, 1995,  as if the Company
had accounted for its  stock-based  compensation  under the fair value method of
SFAS 123. The fair value of the Company's stock-based grants was estimated using
a Black-Scholes  option pricing model. The Black-Scholes  option valuation model
was developed for use in estimating  the fair value of traded options which have
specific  vesting  schedules and are  ordinarily not  transferable.  Because the
Black-Scholes  model  requires  the  input  of  highly  subjective  assumptions,
including the expected stock price  volatility  which can materially  affect the
fair  value  estimate,  in  management's  opinion,  the  existing  models do not
necessarily

                                       34
<PAGE>
<TABLE>

provide a reliable  single  measure of the fair  value of its  grants.  The fair
value of the Company's  stock-based  grants was  estimated  assuming no expected
dividends and the following weighted-average assumptions:
<CAPTION>

                                                        Options                          Purchase Plan
                                            ---------------------------------   --------------------------------
                                                 1997              1996              1997             1996
                                            ---------------   ---------------   ---------------  ---------------
<S>                                             <C>               <C>                 <C>               <C>
Expected Life Years                              3.17              3.15                .5                .5
Volatility                                      64.68%            65.45%            64.43%            64.14%
Risk-Free Interest Rate                          6.20%             5.61%             5.25%             5.19%
</TABLE>

For pro forma  purposes,  the estimated fair value of the Company's  stock-based
grants is amortized over the options'  vesting period (for stock options granted
under the 1995 Plan and the  Director  Plan) and the six month  purchase  period
(for stock  purchases under the Purchase Plan). No purchases were made under the
Purchase Plan prior to fiscal year 1997.  The  Company's  pro forma  information
follows, amounts in thousands except per share amounts):

                                                      1997              1996
                                                  -------------     ------------
Net income (loss) - pro forma                      ($1,148)            $4,346
Primary net income (loss) per share - pro forma     ($0.11)           $  0.41

Because SFAS 123 is applicable only to options  granted  subsequent to March 31,
1995, its pro forma effect will not be fully reflected until  approximately  the
year 2000. The  weighted-average  fair value of stock options and stock purchase
rights granted in fiscal 1997 was $3.24 and $2.35 per share, respectively.


16.     LITIGATION

In October 1994, the Company's Board of Directors  appointed a Special Committee
of  independent  directors to conduct an  investigation  into  possible  revenue
recognition  and other  accounting  irregularities.  The  ensuing  investigation
resulted in the  termination of the Company's  former  Chairman and CEO, Chan M.
Desaigoudar, and several other key management employees.

In January 1995,  the Company  reported that an  investigation  conducted by the
Special  Committee  of the  Board of  Directors  and Ernst & Young LLP had found
widespread  accounting  and  other  irregularities  in the  Company's  financial
results  for the fiscal  year ended June 30,  1994.  On  February  6, 1995,  the
Company filed a Report on Form 10-K/A  restating its results for the fiscal year
ended June 30, 1994. Upon restatement,  the Company reported a net loss of $15.2
million,  or a loss of $1.88 per share, on total revenues of $30.1 million.  The
Company previously had reported earnings of $5.1 million, or $0.62 per share, on
revenues of $45.3 million. The accounting irregularities and related matters are
the subject of securities class actions against the Company,  as well as pending
investigations  into possible  violations of the federal  securities laws by the
Securities and Exchange Commission ("SEC") and the Justice Department.

From August 5, 1994 through  February 16, 1995,  eleven  purported  class action
complaints  were filed against the Company in the United States  District  Court
for the Northern  District of California.  Other  defendants  named in the class
actions include certain of the Company's current and former officers and Coopers
& Lybrand  L.L.P.,  the  Company's  former  outside  auditor.  The class actions
purport to be brought on behalf of  classes  of  shareholders  of the  Company's
common  stock over varying  periods of time  ranging  from  September 7, 1993 to
January 9, 1995.  The  gravamen  of the  allegations  against the Company in the
class actions is that it violated Section 10(b) and Rule 10b-5 of the Securities
Exchange Act of 1934 by disseminating false and misleading  financial statements
and  reports  for the fiscal  year ended June 30,  1993 and June 30,  1994.  The
complaints seek unspecified compensatory damages and attorneys' fees, as well as
other relief.

On or about February 23, 1995, the Company entered into a proposed settlement of
the class actions,  pursuant to which claims against the Company would have been
released  by  shareholders  who  had  purchased  Company  common  stock  between
September 7, 1993 through  January 9, 1995,  in exchange for the Company  paying
the class $1.0 million and the issuance to the class of one million five hundred
thousand shares (1,500,000), as well as certain non-monetary consideration.  The
issued shares were to be accompanied by a Contingent Value Right (CVR), personal
to the class member, and not transferable,  which would have entitled the holder
thereof to receive

                                       35
<PAGE>

the difference,  if any, between eight dollars ($8.00) per share and the highest
average trading price of the Company's common stock over any consecutive  twenty
trading day period during the three and one half years following issuance of the
shares,  if such price were lower  than  $8.00.  The total cost of the  proposed
settlement was $13.0 million,  which was expensed in the fiscal year ended March
31, 1995, financial statements.

On February 2, 1996,  Judge Vaughn R. Walker of the United States District Court
for the Northern District of California denied a motion for preliminary approval
of the 1995  proposed  settlement.  On May 2, 1996,  Judge  Walker  ordered this
matter to Judge Eugene F. Lynch for settlement  conferences  which resulted in a
new proposed  settlement  announced by the Company on  September  16, 1996.  All
defendants, other than Mr. Desaigoudar, participated in the new settlement.

On March 7, 1997,  Judge  Walker  orally  granted  plaintiffs'  motion for final
approval of the new  settlement.  On May 20,  1997,  the Court  issued a written
order  certifying the proposed  class for settlement  purposes and approving the
settlement.  Members  of the class  have  thirty  (30) days to appeal  from that
order;  however,  the Company views such an appeal as unlikely,  in light of the
overwhelming acceptance of the settlement.

Generally,  the Company's  contribution towards the new settlement calls for the
payment of  $6,000,000  in cash and the  issuance  of 608,696  new shares of the
Company's  common stock to the class.  Each new share will be  accompanied  by a
Contingent  Value Right (CVR),  personal to the  shareholder,  that entitles the
shareholder  to receive  the  difference  between  $11.50 and the highest 20 day
average trading price of the Company's  common stock (assuming the average price
is less than $11.50) over the three years following the issuance of the CVR. The
CVR expires at the end of the three year period or when the $11.50 price is met,
whichever  occurs first.  In addition,  the Company will pay  $2,000,000  into a
restricted  account as a guarantee for performance  under the CVR. The cash will
be  returned  to  the  Company,  without  interest,  if  and  when  the  CVR  is
extinguished.

The terms of this settlement differ from those negotiated in 1995. However,  the
aggregate amount of consideration to be paid by the Company,  in cash and common
stock,  is  the  same  in  both  settlements.  The  new  settlement  reflects  a
substantial  reduction in the common stock component (from 1,500,000 shares down
to 608,696  shares)  and a  substantial  increase  in cash (from  $1,000,000  to
$6,000,000).  Pursuant to the terms of the agreement,  the Company has deposited
the cash  component of the  settlement in a trust account  controlled by counsel
for the class and has recorded as restricted  cash the  $2,000,000  guarantee of
performance  under the CVR. If the new settlement  does not become final,  these
monies will be returned, with accrued interest, to the Company.

A putative  shareholders  derivative action was filed against certain former and
present  officers and  directors of the Company on May 25, 1995,  in Santa Clara
County Superior Court.  Plaintiff  subsequently agreed to dismiss from the case,
without prejudice, all of the outside directors named in the complaint; the only
current Company officer named as a defendant is the Company's  General  Counsel.
The stay  previously  granted in this matter has lapsed and  discovery  is being
undertaken by the plaintiff.

The Company continues to cooperate with the pending investigations of certain of
its  former  officers  by the  Justice  Department  and  the  SEC.  The  Justice
Department  has advised the Company that it is not currently a target or subject
of the  investigation.  The SEC has taken the position that it is premature,  at
this stage in its investigation,  to discuss the resolution of the investigation
of the Company.

The Company is a defendant or plaintiff in various  other actions which arose in
the normal  course of  business.  In the  opinion of  management,  the  ultimate
disposition  of these  matters  will not have a material  adverse  effect on the
financial  condition  or  overall  trends in the  results of  operations  of the
Company.

The Company believes that, with regard to these matters,  it has, to the best of
its knowledge,  made such  adjustments  to its financial  statements by means of
reserves and expensing the costs  thereof,  that these matters will not have any
additional adverse impact on the Company's financial condition.

                                       36
<PAGE>

17.     SEGMENT INFORMATION

The Company's principal  operations are conducted in the United States.  Foreign
sales, primarily in Europe, Canada and Asia, aggregated  approximately 36%, 31%,
and 33% of net product sales for fiscal 1997,  1996, and 1995.  Foreign currency
transaction gains and losses are not significant.

During fiscal 1997,  Motorola accounted for 11% of the net product sales. During
fiscal  1996 and 1995,  no customer  accounted  for more than 10% of net product
sales.


ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

There  were no  disagreements  with the  independent  accountants  in the  three
periods ended March 31, 1997, March 31, 1996, and March 31, 1995.

In January 1995, Coopers & Lybrand L.L.P.  resigned as the Company's independent
accountants and were replaced by Ernst & Young LLP.


                                       37
<PAGE>

                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The  information  required by this Item is set forth in the 1997 Proxy Statement
under the captions "Officers and Directors" and "Executive  Compensation" and is
incorporated herein by reference.


ITEM 11. EXECUTIVE COMPENSATION.

The  information  required by this Item is set forth in the 1997 Proxy Statement
under  the  caption  "Executive  Compensation"  and is  incorporated  herein  by
reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Information  related to  security  ownership  of certain  beneficial  owners and
security  ownership of management is set forth in the 1997 Proxy Statement under
the caption "Security Ownership of Management and Principal Shareholders" and is
incorporated herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The  information  required by this Item is set forth in the 1997 Proxy Statement
under the caption "Certain  Relationships  and Transactions" and is incorporated
herein by reference.


                                       38

<PAGE>

                                     PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES, AND REPORTS ON FORM 8-K.

The following documents are filed as a part of this Report:

(a)     1.        See Item 8 for a list of financial statements filed herein.

        2.        See Item 8 for a list of financial  statement schedules filed.
                  All other  schedules  have been  omitted  because they are not
                  applicable  or  the  required  information  is  shown  in  the
                  Financial Statements or the notes thereto.

        3.        Exhibit Index:
<TABLE>

               The exhibits  listed below are filed herewith or  incorporated by
reference as indicated. pursuant to Regulation S-K. The exhibit number refers to
number  indicated  pursuant  to  the  Instructions  To  The  Exhibit  Table  for
Regulation S-K.
<CAPTION>

               Exhibit
               Number              Description                             Document if Incorporated by Reference
               -------------       ----------------------------------      -----------------------------------------------------
               <S>                 <C>                                     <C>                                        
               3(i)                Articles of Incorporation, as           Exhibit 3(i) to the Company's Annual Report on Form
                                   amended.                                10K (File No. 0-15549) for the fiscal year ended
                                                                           March 31, 1995, ("1995 Form 10-K).

               3(ii)               By-Laws, as amended.                    Exhibit 3(ii) to the Company's Annual Report on
                                                                           Form 10K (File No. 0-15549) for the fiscal year
                                                                           ended March 31, 1995, ("1995 Form 10-K).

               11                  Statement re: computation of
                                     per share earnings.

               18                  Letter re: change in accounting         Exhibit 18 to the Company's Annual Report on Form
                                   principles.                             10K (File No. 0-15549) for the fiscal year ended
                                                                           March 31, 1995, ("1995 Form 10-K).

               27*                 Financial Data Schedule

</TABLE>

(b)     1.     Reports on Form 8-K:

               On March 11, 1997,  the Company  filed a Form 8-K,  under Item 5,
               reporting  the  release  of  certain  information  regarding  the
               approval of the  settlement  of class  action  lawsuits  previous
               filed against it,

*Exhibit on EDGAR filing only.


                       DOCUMENTS INCORPORATED BY REFERENCE


Portions of the Registrant's  Proxy Statement in connection with its 1997 Annual
Meeting of  Shareholders  (which will be filed with the  Securities and Exchange
Commission  within 120 days of the end of the fiscal year ended March 31,  1997)
are incorporated by reference into Part III.

                                       39
<PAGE>

                                   SCHEDULE 2

                      CALIFORNIA MICRO DEVICES CORPORATION
                        VALUATION AND QUALIFYING ACCOUNTS

<TABLE>

            Year Ended March 31, 1997, Year Ended March 31, 1996, and
                        Nine Months Ended March 31, 1995
                             (Amounts in Thousands)
<CAPTION>
                                                                    Additions
                                                    Balance at      Charged to      Charged to                         Balance
                                                    Beginning        Cost and         Other                          At End of
                                                     of Year         Expense         Accounts     Deductions (1)        Year
                                                  --------------- --------------- --------------- ---------------- ---------------
<S>                                                   <C>             <C>              <C>            <C>              <C>  
Year ended March 31, 1997
  Allowance for doubtful accounts
    (deducted from accounts receivable)               $ 900           $ (15)           $ -            $ 448            $ 437
                                                      ======          ======           ====           ======           =====


Year ended March 31, 1996
  Allowance for doubtful accounts
    (deducted from accounts receivable)               $ 832          $ (345)           $ -           $ (413)           $ 900
                                                      ======         =======           ====          ========          =====

Nine months ended March 31, 1995
  Allowance for doubtful accounts
    (deducted from accounts receivable)               $ 500          $1,230           $ 443           $1,341           $ 832
                                                      ======         =======          ======          =======          =====
<FN>

(1)   Represents write-offs net of recovery of receivables.
</FN>
</TABLE>
                                       40

<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the  undersigned,  thereunto  duly  authorized  on the 22nd day of May
1997.

CALIFORNIA MICRO DEVICES CORPORATION
               (Registrant)


By:     /s/ Jeffrey C. Kalb
        ------------------------
        JEFFREY C. KALB
        President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities indicated on the 22nd day of May 1997.

By:


 /s/ Jeffrey C. Kalb      President and Chief Executive Officer and Director
----------------------    (Principal Executive Officer)
 JEFFREY C. KALB          

 /s/ John E. Trewin       Vice President and Chief Financial Officer
----------------------    (Principal Financial and Accounting Officer)
 JOHN E. TREWIN            

 /s/ Wade Meyercord       Chairman of the Board
----------------------
 WADE MEYERCORD

 /s/ Angel G. Jordan      Director
----------------------
 ANGEL G. JORDAN

 /s/ David B. Schoon      Director
----------------------
 DAVID B. SCHOON

 /s/ Stuart Schube        Director
----------------------
 STUART SCHUBE

 /s/ John Sprague         Director
----------------------
 JOHN SPRAGUE


   A majority of the Board of Directors.

                                       41