<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/T

[X]     TRANSITION REPORT PURSANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

         For the transition period from January 1, 2000 to June 30, 2000

Commission File No. 0-23866

                              VARI-L COMPANY, INC.
                         (Name of Issuer in its Charter)

<TABLE>
<S>                                                  <C>
                   Colorado                                      06-0679347
(State or other jurisdiction of incorporation)       (I.R.S. Employer Identification No.)
</TABLE>

                               4895 Peoria Street
                             Denver, Colorado 80239
                                 (303) 371-1560
          (Address and Telephone Number of Principal Executive Offices)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

                                 Title of Class
                                 --------------
                          Common Stock, $.01 Par Value

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-K contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]


         At January 31, 2001, 7,080,073 shares of Common Stock were outstanding.
The aggregate market value of the Common Stock held by non-affiliates on January
31, 2001 was approximately $24,026,380 based on the Pink Sheets LLC closing
price of $3.50 per share on that date.



<PAGE>   2

                                     PART I

ITEM 1.  BUSINESS

Introduction

Vari-L Company, Inc. ("Vari-L" or the "Company") designs, manufactures and
markets a wide variety of radio frequency and microwave components and devices
mainly used in the wireless communications industry. The Company's products are
used in a broad range of commercial and military/aerospace applications such as
wireless telecommunications networks, wireless point-to-point data systems,
wireless point-to-multi-point data systems, wireless local area networks,
satellite payload and ground communications, radar systems, weapons guidance
systems and advanced telemetry systems. The Company operates as a single
business segment.

Vari-L was founded by James Kiser in 1953 in Stamford, Connecticut. The Company
relocated to Denver, Colorado in 1969 where it is now headquartered. Vari-L's
first contract was with the United States Navy to supply electrically variable
inductors. The letter "L" is the symbol for electrical inductance. Hence, the
name Vari-L.

The Company's corporate headquarters is located at 4895 Peoria Street, Denver,
Colorado 80239, and its telephone number is (303)371-1560. The Company also
conducts certain portions of its operations at three other buildings within a
five-mile radius of its Denver headquarters building.

Overview

The Company provides high-quality, value-added electronic components as
solutions to customer needs at competitive prices. The Company's products are
mainly used in wireless communications equipment. Wireless communication is the
transmission of voice or data signals through the air without a physical
connection such as a metal wire or fiber-optic cable. Information transmitted
through wireless communications equipment is transmitted by electromagnetic
waves, also known as signals. Electromagnetic waves vary in length (or
frequency) and intensity. The range of electromagnetic waves is called the
spectrum which encompasses sound near the low end and light toward the higher
end. In between is the radio spectrum used in most wireless communications.
Radio Frequency ("RF") indicates lower frequencies while "microwave" refers to
relatively higher frequencies in the spectrum.

For more than 47 years, Vari-L has served the military/aerospace industry as a
supplier of advanced electronics components products. In 1992, the Company
recognized a strategic opportunity to expand its market opportunities to include
the commercial marketplace and address the growing demand for commercial
wireless communications products. Accordingly, starting in 1993, the Company
expanded its engineering, manufacturing and sales efforts toward this market,
and has recently initiated a gradual phase-down of its military/aerospace
product lines.

The Company's customers are original equipment manufacturers ("OEMs") which
design and build electronic assemblies such as cellular basestations, pagers,
radar systems, and other communications equipment. Vari-L markets its commercial
product lines to original equipment manufacturers and counts among its
commercial customers companies such as Motorola, Ericsson, Nokia, Siemens and
Lucent Technologies. Customers for its military/aerospace product lines include
Raytheon, Lockheed Martin, Northrup Grumman and Rockwell. Vari-L has been
recognized by its customers through the years for its ability to develop,
manufacture, and deliver highly reliable, innovative products.

Vari-L has five product lines consisting of two major categories: signal source
components and passive components for processing RF signals. Sales for the
Company's products are generated through manufacturers' representatives and a
direct sales force, as well as by advertising in trade magazines and


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participating in trade shows. The Company produces some generic standard product
models and publishes its product specifications in trade magazines and in its
catalog.

Products

The Company produces electronic components that are basic building blocks used
in communication systems and radar systems. The Company designs and manufactures
both catalog products and custom-designed solutions for its customers in five
product lines:


o    Commercial Signal Sources
o    High-Reliability (Hi-Rel) Signal Sources
o    Military Signal Processing Components
o    RF Passive Components
o    Commercial Special Assemblies


Vari-L's product strategy is to provide standardized design platforms which can
be efficiently manufactured in mass production and at the same time be
configured to meet the custom needs of individual customers.

The majority of the Company's revenue is generated from the sale of signal
source components. The Company designs and produces voltage-controlled
oscillators ("VCOs") and Phase Locked Loops ("PLLs"). These components are the
source of the signal transmitted in a communication or radar system. These
signal sources are designed to produce a high quality signal that can be used
over a range of radio frequencies. These components are used in both receiving
and transmission equipment. The Company holds six patents related to signal
source design and technology.

Commercial Signal Source Components

Most of the Company's sales over the last six years have been attributable to
VCOs in this product line. These components are designed for high-performance
cellular basestations and other wireless applications. These products are used
in technically demanding applications where signal quality is an important
feature. Low phase noise is an extremely desirable quality in a frequency source
in modern communications. Lower phase noise levels often translate into better
signal quality in modern communications systems. The lower amount of noise
contributed to the basestation by the frequency source is one of the key
features of the Company's products. Low noise design techniques and design
models have been developed by the Company through years of research and
development. The Company constantly strives to improve performance of its
products to remain competitive.

These products have been designed to accommodate high-volume manufacturing
techniques, thereby reducing manufacturing costs. The Company also has developed
manufacturing techniques that allow parts to be very closely spaced when
assembled without sacrificing quality or capacity. This allows a component to be
smaller in size or to include more functionality in a given space. There is a
constant demand by the market for the Company to decrease the size of its
products. These products are produced in surface-mount packages compatible with
high-speed assembly techniques used in the industry and are typically delivered
to customers on tape and reel.

In 1999, the Company introduced products based upon the design techniques used
in its Commercial Signal Source products for niche subscriber applications.
These products display superior noise performance as compared with other
products in the marketplace and can be desirable in high-performance subscriber
applications. These products are typically utilized in niche applications where
performance is a discriminating feature. However, in high-volume lower
performance applications, the technology currently used by the Company to
produce these products is not cost competitive.


                                       3
<PAGE>   4



Hi-Rel Signal Source Components

The Hi-Rel Signal Source components perform the same function as the Commercial
Signal Source components. However, these components are constructed using
different assembly techniques and are designed for a different operating
environment. These components are designed for wideband applications and are
constructed in hermetically sealed packages. This construction technique allows
the product to be used over extended temperature ranges and in adverse
environments often specified for both military/aerospace and high-end industrial
applications. These components are designed for use in either "through-hole" or
"surface-mount" packages, depending on customer requirements, and are typically
delivered in bulk to the customer.

Military Signal Processing Components

The Company produces a line of custom-design RF and microwave signal processing
components primarily used in military/aerospace applications. Among these
products are power dividers and combiners used for directing RF and microwave
signals, solid state switches used to change the routing of RF and microwave
signals, and transformers used to convert signals between different impedances.
The Company also produces mixers which are used to convert the frequency of RF
and microwave signals into baseband signals. The production of custom-designed
components usually entails the modification of existing products to meet the
specific performance criteria of the customer, but may, in certain instances,
require the design of an entirely new product. Since the components are
manufactured to a customer's specifications, the Company is often a sole source
supplier to its customer.

RF Passive Components

The Company has developed a line of RF Passive components (couplers,
transformers and power dividers) for use in commercial communications equipment.
In 1997, the Company patented technology for a high-impedance ratio, wide-band
transformer circuit used in the conversion of radio frequency signals to light
wave signals (i.e. fiber optics). In 1998, a patent was awarded for a further
design improvement to the 1997 patent. Demand for the "fiber-optic" transformer
circuit comes from a variety of fiber-optic applications, including cable
television and point-to-point data transmission networks.

Commercial Special Assemblies

Commercial Special Assemblies integrate the components that the Company
manufactures into higher assemblies as a value-added customer service. This
product line consists of a single product, which is a high performance frequency
converter. It is used in set top applications and utilizes the Company's
Commercial Signal Source components within the design. Shipments of this product
line ceased in September 2000.

Manufacturing

The Company does most of its manufacturing at three facilities in Denver.
Portions of certain RF Passive components are assembled at contract
manufacturers outside the United States to benefit from reduced costs for some
labor-intensive assembly activities. All of the Company's products are completed
and tested at the facilities in Denver. These three facilities have more than
25,000 square feet of manufacturing space.

The Company's Commercial Signal Source components are manufactured utilizing
automated and semi-automated equipment. The equipment includes "pick and place"
machines, automated test stations, soldering robots, laser marking equipment and
tape and reel equipment. The automation of the manufacturing processes is
designed to improve product consistency and quality and to reduce labor cost.
Until late 1997, the Company subcontracted the "pick and place" assembly
process. Subsequently, the Company acquired two automated "pick and place"
assembly lines. In 1998 and 1999, the Company


                                       4
<PAGE>   5


automated additional functions in the manufacturing process and upgraded its
"pick and place" capacity to meet its growing customer demands. In 2000, the
Company added additional manufacturing capacity and now has an annual production
capacity of more than nine million parts.

The Company uses a modular approach to its commercial manufacturing, allowing
the equipment to be used for a wide variety of products. This configuration
minimizes the set-up time between different products, which allows the Company
to respond quickly to meet customer's demands.

Manufacturing of the Company's other products is accomplished using
hand-assembly techniques and some automated testing. The production cycle for
these products varies widely from one to fifty-two weeks and the volumes of
products produced are smaller with typical production lots which are less than
100 pieces. Some of these components are assembled in a class 10,000 clean room
that the Company maintains. The clean room is necessary for maintaining the
proper conditions to assemble products using unpackaged semiconductors.

Suppliers

The Company currently has a number of suppliers of raw material and components
for its products. In some cases, the Company utilizes a single source of supply
for raw materials and components. The Company attempts to identify alternative
suppliers to minimize this risk. In certain instances, however, the Company's
suppliers are subject to the approval of its customers.

From time to time, lead times for certain components used in the Company's
Commercial Signal Source products have increased because of high worldwide
demand. To reduce the risk of part shortages, the Company may decide to increase
its on-hand raw material inventory. However, this exposes the Company to the
countervailing risk that it may accumulate unusable or excess inventory.

The Hi-Rel Signal Source and Military Signal Processing product lines use custom
and unique materials in the products. As demand in the military/aerospace
marketplace has declined, some of the Company's suppliers have decided to exit
the business and some have adopted minimum lot buy policies. The Company has
replaced some of these vendors, and in other cases has purchased portions of the
excess inventory of those vendors that have decided to exit the business.

Sales and Marketing

Originally, the Company's primary business was to engineer, manufacture and
market high-performance, high-reliability, RF and microwave signal source and
signal processing components used in military/aerospace applications, such as
missile guidance systems, advanced navigational systems and advanced radar
systems. In 1993, the Company expanded its focus to the commercial market, to
lessen the Company's susceptibility to trends in defense spending and to seek a
share of the growing demand for commercial wireless communications. As a result
of this shift, fluctuations in the Company's business are now more dependent on
general business cycles, changes in market demand for the commercial signal
source products built with the Company's components, and on technological
innovations. The commercial signal source product line was launched in 1994, and
accounted for 83% of revenue for the six months ended June 30, 2000.




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<PAGE>   6


The following table summarizes the Company's net sales by product line:

<TABLE>
<CAPTION>
                                                                                        YEAR
                                                   SIX MONTHS        SIX MONTHS         ENDED
                                                      ENDED            ENDED          DECEMBER
                                                  JUNE 30, 2000    JUNE 30, 1999      31, 1999
                                                  -------------    -------------    ------------
<S>                                               <C>              <C>             <C>

Commercial Signal Source Components               $ 14,252,154        8,188,552       18,231,425
Hi-Rel Signal Source Components                      1,238,209          940,689        2,323,656
Military Signal Processing Components                  667,345          929,730        1,628,880
RF Passive Components                                  643,599          714,206        1,601,123
Commercial Special Assemblies                          356,234               --          427,165
                                                  ------------     ------------     ------------
                                                  $ 17,157,541       10,773,177       24,212,249
                                                  ============     ============     ============
</TABLE>

The Company sells its products primarily through manufacturers' representatives
who promote and solicit orders for the Company's products on a commission basis
in exclusive marketing territories. The Company selects its sales
representatives on the basis of technical and marketing expertise, reputation
within the industry, and financial stability. These manufacturers'
representatives also represent other manufacturers with products complementary
to, rather than competitive with, the Company's products. The Company normally
engages 14 to 16 manufacturers' representative firms in the U.S. and also has 16
manufacturers' representatives covering 18 foreign countries. In addition to the
manufacturers' representatives noted above, the Company also employs a
direct-sales force comprised of the following principal positions:

o    Executive Vice President of Sales & Marketing
o    Eastern Regional Sales Manager
o    Western Regional Sales Manager
o    Director of Program Management
o    International Sales Manager
o    Director of Motorola Sales
o    Director of Sales-Nokia/Ericsson

In addition to the above efforts, the Company uses various methods to directly
promote its products, including field visits to customers, advertising in trade
journals, authoring technical articles for publication in trade journals and
participating in trade show product seminars and exhibitions.

Backlog

Backlog of unfilled firm orders at December 31, 2000, and for prior periods is
not available.

Customers

The Company sells primarily to original equipment manufacturers of
communications equipment in either the commercial or military/aerospace
marketplace. Many of those customers are large international and domestic
companies with worldwide operations or prime contractors for military/aerospace
work. Management believes it has a strong reputation with these and other
customers for high-performance products and solutions.

Key customers of the Company include ACAL Electronics, Adaptive Broadband,
Glenayre Technologies/Wireless Access, Ericsson, Lucent Technologies, Motorola,
Netro, Nokia and Siemens in the commercial market, and Harris, Hughes, Lockheed
Martin, Mitsubishi, NEC, Northrop Grumman, Raytheon and Saab Ericsson in the
military/aerospace market. In 1999, Motorola and Nokia accounted for 22% and 15%
of sales revenues, respectively. The Company's three largest customers for the
six


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months ended June 30, 2000 were Motorola, ACAL Electronics and Nokia, with 20%,
14% and 14% of sales revenues, respectively.

The Company's customers have historically purchased products from the Company as
needed, rather than through long-term supply contracts. The Company, however,
does enter into long-term purchase agreements with some of its larger customers.
These agreements establish preferred vendor status for the Company and, in most
cases, indicate estimated purchase amounts over the term of the agreement.

Competition

The market for virtually all of the Company's products is extremely competitive.
Many of the Company's competitors, including divisions of major corporations,
have significantly greater resources than those currently available to the
Company. Additionally, some of the Company's customers compete with the Company
by manufacturing certain components themselves, rather than purchasing them from
the Company. Some multi-national manufacturing firms have the ability to
manufacture competitive products in larger production runs than the Company. The
Company also faces considerable competition from competitors with overseas
production facilities, where lower labor and other costs can result in lower
production costs. The Company has recently expanded its mass production
capabilities to address this competitive condition.

The Company believes that its surface-mount products for commercial applications
compete with other manufacturers' products on the basis of their unique
features, price and performance. The Company believes that its products
manufactured for military/aerospace applications, including its Signal
Processing Components and Wide-Band VCOs, compete on the basis of quality and
performance. These products are typically high-performance, high-reliability
components which are required to meet high quality system standards.

The Company believes that Mini-Circuits, M/A-COM and Temex are its largest
competitors in the commercial signal source components market. The Company
believes Merrimac Industries is its largest competitor in the military signal
processing components market. Remec/Magnum competes with the Company primarily
in the Hi-Rel signal source components market. The Company believes that it will
continue to compete in these markets on the strength of its product performance
and its ongoing commitment to technological innovation.

Research and Development

Vari-L's development efforts occur in four areas:

o    Application engineering,
o    Improvement of the Commercial Signal Source product line,
o    Expansion of the RF Passive Component product line, and
o    Development of new product lines.

The Company is continually modifying designs released from the research
department to configure products for each unique customer application. This
configuration process is performed by the Company's application design
engineering team.

The Company has an ongoing product improvement program designed to improve the
technology gap between Vari-L and its competitors. To this end the Company has
dedicated resources to the improvement of the phase noise performance of its
commercial product lines. In addition, the Company is developing products to
service customers in the emerging broadband communications markets. This market
requires wide-band signal sources with better phase noise specifications than
traditionally offered.


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RF Passive Component products are normally hand-assembled, labor-intensive
parts. To offer a highly competitive solution to the market, Vari-L is
developing a product concept that can be highly automated, thus eliminating much
of the human labor.

The last area of product development is focused at the introduction of a new
line of microwave signal sources (frequencies greater than 10 GHz). This line of
oscillators is directed toward microwave broadband wireless communications
equipment manufacturers.

Patents

The patent on the Company's wide-band VCO was issued in the U.S. on November 4,
1986, in Canada on April 17, 1990, and by the European Patent Office on April 3,
1992. The U.S. patent will expire in 2005. The Canadian patent will expire in
2007 and the European patents will expire in 2006. In December of 1998, the
Company received a patent from the Chinese government for technology used in its
signal source components. The Company obtained this patent protection while it
was considering the development of a manufacturing facility in China. The
Company is currently not pursuing a manufacturing facility in China.

The Company also owns U.S. patents for (i) a High Impedance Ratio Wideband
Transformer Circuit expiring in 2015, (ii) a 1.2 Volt Voltage Controlled
Oscillator expiring in 2016 and (iii) an Unbalanced to Balanced High Impedance
Ratio Wide-Band Transformer Circuit expiring in 2015.

Additionally, during 1999 the Company received approval from the U.S. Patent and
Trademark Office on five new patents which expire in 2017. In January 1999, the
Company announced two patents for a "Sliver Board Orthogonal Mounted Substrate
Resonator" and a "Continually Adjustable Resonator". This technology could
potentially enable high-volume, automated production of advanced high-frequency
components. In June 1999, the Company announced a "Multiple Single-Layer
Monolithic Passive Integrated Circuits and Method" patent. This technology could
potentially improve the manufacturing process of commercial products for
wireless applications. This improvement would entail the lowering of material
costs and assembly times by integrating multiple components into a single unit
during production. In July 1999, the Company announced patents for a "Switched
Mode Oscillator" and a "Passive Switched Oscillator Output Circuit". Both
patents apply to critical improvements of the Company's dual-band VCOs. The
Switched Mode Oscillator allows the VCOs to operate on two significantly
different frequencies with only a single transistor. The Passive Switched
Oscillator Output Circuit enables two oscillators to be integrated into a single
unit with a minimum of added circuitry. These patents bring improvements to
production cost, and, in the case of the Passive Switched Oscillator Output
Circuit, reduced component size.

To the Company's knowledge, there are no asserted claims by other parties
against the Company's patents or its other proprietary technologies.

In the absence of patents, the Company relies upon nondisclosure agreements and
trade secret laws to protect its confidential and proprietary information. Due
to the rapid rate of technological change in its markets, the Company believes
that the ability to innovate is of greater importance to its business than
availability of patents and proprietary rights. Barriers to competitor entry for
non-patented technology include the time and expense to design and manufacture
components and the difficulty of marketing to those customers who have already
designed the Company's components into their equipment.

Government Regulation

In certain instances, the Company is required to obtain both Department of
Commerce and Department of State export licenses before filling foreign orders.
The Bureau of Export Administration has listed certain criteria whereby some of
the Company's products are regulated for export because of national security,
missile technology, and regional stability, principally with regard to
military/aerospace applications. Any foreign sales of the Company's products
requiring export licenses must comply with these regulations.


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<PAGE>   9


Employees

As of June 30, 2000 and January 31, 2001, the number of personnel employed by
the Company (excluding contract/agency employees) was 274 and 255, respectively.
The Company believes that its employee relations are good.

ITEM 2. DESCRIPTION OF PROPERTY

The Company leases four buildings in Denver for its production facilities and
its administrative offices. Three of these buildings are leased from related
parties. The Company is responsible for payment of insurance, taxes and
maintenance and other expenses related to these leased properties. The leases
expire between 2002 and 2013, and generally contain renewal options. The Company
believes that its leased facilities are adequate for its current operations.

ITEM 3. LEGAL PROCEEDINGS

The U.S. Securities and Exchange Commission (the "Commission") is currently
investigating the Company to determine whether there were violations of the
federal securities laws by the Company or any of its officers, directors or
employees (the "SEC Investigation"). The Company believes that the SEC
Investigation is focused on the Company's prior financial reporting and its
accounting practices and procedures. The Company has been providing documents
and other information requested by the Commission staff in the course of its
investigation. The Commission has not brought an action against the Company, but
it may do so in the future. In such an event, the Commission may seek injunctive
or other relief from the Company.

A number of private shareholder class actions alleging violations of federal
securities laws were filed against the Company in the U.S. District Court for
the District of Colorado beginning in June 2000. On August 3, 2000, all of these
class actions were consolidated into a single action, Rasner v. Vari-L Company,
Inc., et al., Civ. No. 00-S-1181, U.S.D.C., D. Colo. Lead counsel for the
representatives of the putative plaintiff class have been appointed but,
pursuant to the court's order, the Company's obligation to respond to the
complaints has been deferred until such time as the lead plaintiff files an
amended complaint. As of the date hereof, an amended complaint has not yet been
filed and a class has not been certified.

The consolidated class action complaints were filed on behalf of persons who
purchased shares of the Company's stock between 1997 and sometime in 2000 (the
"Class Period"). All of the complaints name the Company; David G. Sherman, the
Company's former President and Chief Executive Officer; Joseph H. Kiser, the
Company's Chief Scientific Officer and Jon L. Clark, the Company's former Chief
Financial Officer, as defendants. Some of the complaints also name Derek L.
Bailey, the Company's Executive Vice President of Sales and Marketing, as an
additional defendant. The various complaints allege that the Company's financial
statements for the years 1997, 1998 and 1999 did not conform to generally
accepted accounting principles and were materially false and misleading. The
complaints allege violations of Section 10(b) of the Securities Exchange Act of
1934 and seek to impose "control person" liability on the individual defendants
pursuant to Section 20(a) of the Exchange Act. The complaints generally seek
compensatory damages in an unspecified amount, attorneys' fees and costs of
suit, equitable and injunctive relief as permitted by law, including the
imposition of a constructive trust on the assets of the individual defendants,
and any other relief the court deems just and proper.

Some of the complaints allege that the individual defendants sold stock
throughout the Class Period as part of an alleged scheme to defraud the public.
Some complaints specifically allege that the Company instituted a policy of
"bill and hold," in which the Company would book and report revenue for the sale


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<PAGE>   10


of its products even though the Company retained physical possession of the
product. Some complaints also cite a May 18, 2000 Denver newspaper article in
which Mr. Sherman stated that he believed that the restatements would have
little effect on the Company's 1998 and 1999 earnings.

The parties have had preliminary discussions regarding the possibility of
settlement. There can be no assurance, however, that a settlement acceptable to
the Company can be reached or that any settlement reached will not have a
material adverse effect on the Company. In addition, the individual defendants
in the class action may have claims against the Company for indemnification of
their cost of defense, which claims may be material. See "Certain Relationships
and Related Transactions."

On August 4, 2000, a shareholder derivative action was filed, purportedly on
behalf of the Company in Colorado state court in Denver, captioned Ritter v.
Kiser, et al., No. 00-CV-6001, Colo. Dist. Ct., Denver. The Company is named in
that action as a nominal defendant. A shareholder derivative action is a state
law action in which shareholders assert claims against third parties on behalf
of the corporation. The derivative complaint alleges some of the same facts as
were asserted in the class actions in federal court and claims that those facts
demonstrate that the officers named in the class actions, as well as the
Company's directors, breached their fiduciary duties to the Company and the
shareholders in connection with the Company's erroneous reporting of its
financial results.


The Company and the other defendants have moved to dismiss the derivative
action. In its motion, the Company argues that the plaintiffs have not
substantiated the allegations for a court to allow the derivative plaintiffs to
bypass the Board of Directors in pursuing claims for the benefit of the Company.
The Company believes that the derivative plaintiffs should not be permitted to
usurp the function of the Board of Directors under the present circumstances.
These circumstances include the internal investigation of the prior accounting
irregularities by the Audit Committee of the Board of Directors, the retention
of KPMG LLP to assist the Committee with that investigation, the termination of
the employment of the Company's former President, Chief Financial Officer and
Controller, the installation of a new management team, the retention of KPMG LLP
as the Company's new independent accountants, and the reformation of the
Company's Board of Directors to exclude all officers and employees from the
Board. The court has not yet ruled on the motion to dismiss.


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

The Company's annual meeting of shareholders was held on June 30, 2000. At the
meeting Joseph H. Kiser, David G. Sherman, Sarah L. Booher, David A. Lisowski,
Anthony B. Petrelli, Jae H. Shim and Derek L. Bailey were elected as directors.
The shareholders also ratified the appointment of Haugen, Springer & Co. as the
Company's independent public accountants for the year ending December 31, 2000
and approved an amendment to the Company's Tandem Stock Option and Stock
Appreciation Rights Plan to increase the number of shares reserved under the
Plan by 354,000 shares.

The number of votes cast for, withheld or broker nonvotes for each director
nominee was as follows:

<TABLE>
<CAPTION>
                                                               Broker
Nominee                         For           Against         Nonvotes
-------                         ---           -------         --------
<S>                         <C>              <C>                  <C>

Joseph H. Kiser             6,083,953        557,930              0
David G. Sherman            5,996,637        645,156              0
Sarah L. Booher             6,024,523        617,360              0
David A. Lisowski           6,044,146        597,737              0
Anthony B. Petrelli         6,053,890        587,993              0
Jae H. Shim                 6,089,304        552,579              0
Derek L. Bailey             6,085,389        556,494              0
</TABLE>



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<PAGE>   11


The number of votes cast for, against, abstentions and broker nonvotes for
ratification of auditors was as follows:

<TABLE>
<CAPTION>
        For            Against           Abstain       Broker Nonvotes
        ---            -------           -------       ---------------
<S>                    <C>               <C>           <C>
     5,665,013         943,913            32,957             0
</TABLE>

The number of votes cast for, against, abstentions and broker nonvotes for
approval of the amendment to the Company's Tandem Plan was as follows:

<TABLE>
<CAPTION>
         For           Against           Abstain       Broker Nonvotes
         ---           -------           -------       ---------------
<S>                   <C>                <C>           <C>
     5,319,742        1,258,303          63,838                0
</TABLE>

Because the election of directors, ratification of auditors and approval of the
increase in the number of shares reserved under the Tandem Plan were considered
routine under applicable stock exchange rules, all proxy shares held in the
names of brokers as nominees which were not voted at the meeting by the
shareholders were voted by the brokers at their discretion.




                                       11
<PAGE>   12




                              VARI-L COMPANY, INC.

                              Financial Statements

                                  June 30, 2000

                   (With Independent Auditors' Report Thereon)


<PAGE>   13


                              VARI-L COMPANY, INC.

                              Financial Statements

                                  June 30, 2000

                                      Index



<TABLE>
<S>                                                                                  <C>
Financial Statements:

    Independent Auditors' Report                                                      F-1

    Balance Sheets, June 30, 2000 and December 31, 1999 (unaudited)                   F-2

    Statements of Operations, Six months ended June 30, 2000 (unaudited)
       and year ended December 31, 1999 (unaudited)                                   F-3

    Statements of Stockholders' Equity, Six months ended June 30, 2000 (unaudited)
       and year ended December 31, 1999 (unaudited)                                   F-4

    Statements of Cash Flows, Six months ended June 30, 2000 (unaudited)
       and year ended December 31, 1999 (unaudited)                                   F-5

    Notes to Financial Statements                                                     F-6


Schedule:

Schedule II - Valuation and Qualifying Accounts (unaudited)                           F-28
</TABLE>


<PAGE>   14

                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors
Vari-L Company, Inc.:

We have audited the accompanying balance sheet of Vari-L Company, Inc. as of
June 30, 2000. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.

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

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Vari-L Company, Inc. as of June 30,
2000, in conformity with accounting principles generally accepted in the United
States of America.

The accompanying balance sheet as of December 31, 1999 and the statements of
operations, stockholders' equity, and cash flows for the six months ended June
30, 2000 and for the year ended December 31, 1999 and related Schedule II were
not audited by us and, accordingly, we do not express an opinion on them.



Denver, Colorado
January 19, 2001










                                      F-1
<PAGE>   15


                              VARI-L COMPANY, INC.

                                 Balance Sheets


<TABLE>
<CAPTION>
                                                                           June 30,          December 31,
                               ASSETS                                        2000                1999
                                                                       ---------------      ---------------
                                                                                          (restated - note 2)
                                                                                              (unaudited)
<S>                                                                    <C>                  <C>
Current assets:
    Cash and cash equivalents                                          $    11,030,293           14,721,048
    Trade accounts receivable, less allowance for doubtful
       accounts of $174,634 and $208,156, respectively (note 4)              5,881,280            4,075,990
    Inventories (notes 3 and 4)                                              7,434,660            4,465,102
    Prepaid expenses and other current assets                                  189,485               22,474
                                                                       ---------------      ---------------

                Total current assets                                        24,535,718           23,284,614
                                                                       ---------------      ---------------

Property and equipment (note 4):
    Machinery and equipment                                                  9,845,402            8,223,217
    Furniture and fixtures                                                     720,971              668,368
    Leasehold improvements                                                   1,538,575            1,486,045
                                                                       ---------------      ---------------

                                                                            12,104,948           10,377,630
    Less accumulated depreciation and amortization                           4,767,159            4,048,163
                                                                       ---------------      ---------------

                Net property and equipment                                   7,337,789            6,329,467

Intangible and other assets                                                    697,185              625,729
                                                                       ---------------      ---------------

                Total assets                                           $    32,570,692           30,239,810
                                                                       ===============      ===============

                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Bank overdraft                                                     $       320,798                   --
    Trade accounts payable                                                   4,182,270            2,385,130
    Accrued compensation                                                     1,499,890            2,164,644
    Other accrued expenses                                                     225,105               56,106
    Notes payable and current installments of long-term
       obligations (note 4)                                                 11,566,386           11,159,081
                                                                       ---------------      ---------------

                Total current liabilities                                   17,794,449           15,764,961

Long-term obligations (note 4)                                                  91,666              101,791
                                                                       ---------------      ---------------

                Total liabilities                                           17,886,115           15,866,752
                                                                       ---------------      ---------------

Stockholders' equity (notes 6 and 7):
    Common stock, $.01 par value, 50,000,000 shares authorized;
      7,070,423 and 6,945,483 shares issued and outstanding,
      respectively                                                              70,704               69,455
    Additional paid-in capital                                              40,524,974           40,449,692
    Unamortized stock compensation cost                                     (4,318,371)          (5,732,611)
    Accumulated deficit                                                    (21,592,730)         (20,413,478)
                                                                       ---------------      ---------------

                Total stockholders' equity                                  14,684,577           14,373,058
                                                                       ---------------      ---------------

Commitments and contingencies (notes 4, 7, 8, 9 and 13)

                Total liabilities and stockholders' equity             $    32,570,692           30,239,810
                                                                       ===============      ===============
</TABLE>


See accompanying notes to financial statements.


                                      F-2
<PAGE>   16


                              VARI-L COMPANY, INC.

                            Statements of Operations

                                   (unaudited)



<TABLE>
<CAPTION>
                                                                Six months          Year ended
                                                              ended June 30,       December 31,
                                                                   2000                1999
                                                             ---------------      ---------------
                                                                                 (restated - note 2)
<S>                                                          <C>                       <C>

Net sales                                                    $    17,157,541           24,212,249

Cost of goods sold                                                10,310,940           12,811,300
                                                             ---------------      ---------------

              Gross profit                                         6,846,601           11,400,949
                                                             ---------------      ---------------

Operating expenses:
     Selling                                                       1,947,893            3,165,746
     General and administrative                                    2,440,097            3,650,742
     Research and development                                      3,002,753            4,852,518
     Expenses relating to accounting restatements and
        the related shareholder litigation (note 12)                 469,347                   --
                                                             ---------------      ---------------

              Total operating  expenses                            7,860,090           11,669,006
                                                             ---------------      ---------------

              Operating loss                                      (1,013,489)            (268,057)

Other income (expense):
     Interest income                                                 314,921              261,827
     Interest expense                                               (453,059)            (878,524)
     Other, net                                                      (27,625)             (32,381)
                                                             ---------------      ---------------

              Total other income (expense)                          (165,763)            (649,078)
                                                             ---------------      ---------------

              Net loss                                       $    (1,179,252)            (917,135)
                                                             ===============      ===============

Loss per share                                               $         (0.17)               (0.16)
                                                             ===============      ===============

Weighted average shares outstanding                                7,042,247            5,680,287
                                                             ===============      ===============
</TABLE>


See accompanying notes to financial statements.



                                      F-3
<PAGE>   17



                              VARI-L COMPANY, INC.

                       Statements of Stockholders' Equity

                          Year ended December 31, 1999
                       and six months ended June 30, 2000

                                  (unaudited)



<TABLE>
<CAPTION>


                                                                        Common stock                 Additional
                                                              ---------------------------------       paid-in
                                                                  Shares            Amount            capital
                                                              ---------------   ---------------  ----------------
<S>                                                           <C>               <C>              <C>

Balance, January 1, 1999, as previously reported                   5,464,134    $      54,641       22,083,833

Restatement adjustments (note 2)                                          --               --        1,045,637
                                                               -------------    -------------    -------------

Balance, January 1, 1999, as restated                              5,464,134           54,641       23,129,470

Warrants exercised                                                   665,000            6,650        6,310,871
Stock options exercised                                              788,193            7,882        5,319,142
Common stock issued under employee stock purchase plan                12,773              128           82,003
Common stock issued to profit sharing plan                            12,851              128          101,073
Common stock issued under stock award plan                            14,300              143           91,905
Common stock repurchased and retired                                 (11,768)            (117)         (88,999)
Stock options granted as compensation                                     --               --        5,535,938
Stock options forfeited                                                   --               --          (31,711)
Amortization of stock compensation cost                                   --               --               --
Net loss                                                                  --               --               --
                                                               -------------    -------------    -------------

Balance, December 31, 1999                                         6,945,483           69,455       40,449,692

Stock options exercised                                              116,569            1,165          930,335
Common stock issued under employee stock purchase plan                 7,471               75           50,130
Common stock issued under stock award plan                               900                9           16,448
Stock options forfeited                                                   --               --         (921,631)
Amortization of stock compensation cost                                   --               --               --
Net loss                                                                  --               --               --
                                                               -------------    -------------    -------------

Balance, June 30, 2000                                             7,070,423    $      70,704       40,524,974
                                                               =============    =============    =============
</TABLE>

<TABLE>
<CAPTION>
                                                                Unamortized       Retained
                                                                   stock          earnings           Total
                                                               compensation     (accumulated     stockholders'
                                                                   cost           deficit)          equity
                                                               -------------    -------------    -------------
<S>                                                            <C>              <C>              <C>

Balance, January 1, 1999, as previously reported                          --       10,286,987       32,425,461

Restatement adjustments (note 2)                                    (340,540)     (29,783,330)     (29,078,233)
                                                               -------------    -------------    -------------

Balance, January 1, 1999, as restated                               (340,540)     (19,496,343)       3,347,228

Warrants exercised                                                        --               --        6,317,521
Stock options exercised                                                   --               --        5,327,024
Common stock issued under employee stock purchase plan                    --               --           82,131
Common stock issued to profit sharing plan                                --               --          101,201
Common stock issued under stock award plan                                --               --           92,048
Common stock repurchased and retired                                      --               --          (89,116)
Stock options granted as compensation                             (5,535,938)              --               --
Stock options forfeited                                               31,711               --               --
Amortization of stock compensation cost                              112,156               --          112,156
Net loss                                                                  --         (917,135)        (917,135)
                                                               -------------    -------------    -------------

Balance, December 31, 1999                                        (5,732,611)     (20,413,478)      14,373,058

Stock options exercised                                                   --               --          931,500
Common stock issued under employee stock purchase plan                    --               --           50,205
Common stock issued under stock award plan                                --               --           16,457
Stock options forfeited                                              921,631               --               --
Amortization of stock compensation cost                              492,609               --          492,609
Net loss                                                                  --       (1,179,252)      (1,179,252)
                                                               -------------    -------------    -------------

Balance, June 30, 2000                                            (4,318,371)     (21,592,730)      14,684,577
                                                               =============    =============    =============
</TABLE>


                                      F-4
<PAGE>   18


                              VARI-L COMPANY, INC.

                            Statements of Cash Flows

                                  (unaudited)


<TABLE>
<CAPTION>
                                                                                Six months        Year ended
                                                                              ended June 30,     December 31,
                                                                                   2000              1999
                                                                              --------------    --------------
                                                                                              (restated - note 2)
<S>                                                                           <C>             <C>

Net loss                                                                      $   (1,179,252)         (917,135)
Adjustments to reconcile net loss to cash used in operating activities:
    Depreciation of property and equipment                                           718,998         1,270,005
    Amortization of intangible assets                                                 13,300            17,011
    Common stock issued under profit sharing and stock award plans                    16,457           193,249
    Amortization of stock compensation                                               492,609           112,156
    Changes in operating assets and liabilities:
       Trade accounts receivable, net                                             (1,805,290)         (591,652)
       Inventories, net                                                           (2,969,558)       (1,043,025)
       Prepaid expenses and other current assets                                    (167,011)           (1,732)
       Trade accounts payable                                                      1,797,140          (247,380)
       Accrued compensation                                                         (664,754)          330,719
       Other accrued expenses                                                        168,999          (236,903)
                                                                              --------------    --------------

                  Total adjustments                                               (2,399,110)         (197,552)
                                                                              --------------    --------------

                  Cash used in operating activities                               (3,578,362)       (1,114,687)
                                                                              --------------    --------------

Cash flows from investing activities:
    Purchases of property and equipment                                           (1,699,285)       (1,939,399)
    Increase in other assets                                                         (84,756)          (55,519)
                                                                              --------------    --------------

                  Cash used in investing activities                               (1,784,041)       (1,994,918)
                                                                              --------------    --------------

Cash flows from financing activities:
    Increase in bank overdraft                                                       320,798                --
    Proceeds from notes payable                                                   11,500,000         3,042,537
    Payments of notes payable                                                    (11,106,982)       (3,356,742)
    Proceeds from long-term obligations                                                   --            40,894
    Payments of long-term obligations                                                (23,873)          (48,658)
    Proceeds from warrants exercised                                                      --         6,317,521
    Proceeds from stock options exercised                                            931,500         5,327,024
    Proceeds from common stock issued under stock purchase plan                       50,205            82,131
    Common stock repurchased                                                              --           (89,116)
                                                                              --------------    --------------

                  Cash provided by financing activities                            1,671,648        11,315,591
                                                                              --------------    --------------

                  Increase (decrease) in cash and cash equivalents                (3,690,755)        8,205,986

Cash and cash equivalents at beginning of period                                  14,721,048         6,515,062
                                                                              --------------    --------------

Cash and cash equivalents at end of period                                    $   11,030,293        14,721,048
                                                                              ==============    ==============

Supplemental disclosures of cash flow information:
    Cash paid for interest                                                    $      315,092           932,595
                                                                              ==============    ==============

    Cash paid for income taxes                                                $           --                --
                                                                              ==============    ==============

During the six months ended June 30, 2000 and the year ended December 31, 1999, equipment was acquired under
  capital lease financing transactions in the amounts of $34,300 and $77,983, respectively.
</TABLE>


See accompanying notes to financial statements.


                                      F-5
<PAGE>   19


                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a)  DESCRIPTION OF BUSINESS

          Vari-L Company, Inc. (the Company) was founded in 1953 and is a
          manufacturer of electronic components. The Company designs,
          manufactures, and markets microwave signal processing components and
          other electronic devices used in the communications industry. The
          Company operates as a single business segment, and its products are
          sold to original equipment manufacturers of communication equipment
          who market their products in both commercial and military markets in
          the United States and internationally.

     (b)  CHANGE IN FISCAL YEAR END

          The Company's Board of Directors approved a change in the Company's
          year end to June 30, effective in 2000.

     (c)  USE OF ESTIMATES

          Management of the Company has made a number of estimates and
          assumptions relating to the reporting of assets and liabilities and
          the disclosure of contingent assets and liabilities to prepare these
          financial statements in conformity with generally accepted accounting
          principles in the United States of America. Significant assumptions
          inherent in the preparation of the accompanying financial statements
          include the provision for doubtful accounts, the provision for excess
          and obsolete inventories, the allowance for product warranties and
          returns, the estimated useful life of property and equipment and the
          estimated useful life of patents. Actual results could differ from
          those estimates.

     (d)  CASH EQUIVALENTS

          Cash equivalents at June 30, 2000 and December 31, 1999 consist of
          U.S. government securities money market funds. For purposes of the
          statement of cash flows, the Company considers all highly liquid debt
          instruments with maturities of three months or less to be cash
          equivalents.

     (e)  INVENTORIES

          Inventories are stated at the lower of cost or market. Cost is
          determined using the first-in, first-out method. A provision is
          recorded to reduce excess and obsolete inventories to their estimated
          net realizable value. The provision for excess and obsolete inventory
          included in cost of goods sold was $443,573 for the six months ended
          June 30, 2000 and $61,621 for the year ended December 31, 1999.



                                      F-6
                                                                     (Continued)
<PAGE>   20

                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)


     (f)  PROPERTY AND EQUIPMENT

          Property and equipment are stated at cost. Plant and equipment under
          capital leases are recorded initially at the present value of the
          minimum lease payments. Depreciation and amortization of property and
          equipment is computed using the straight-line method over estimated
          useful lives of the respective assets, which range from 3 to 10 years.
          Amortization of machinery and equipment under capital leases is
          included in depreciation expense.

          Machinery and equipment recorded under capital leases amounted to
          $125,726 at June 30, 2000 and $97,692 at December 31, 1999 and the
          related accumulated amortization was $35,274 and $18,936,
          respectively.

     (g)  OTHER ASSETS

          Intangible assets, consisting of patents and trademarks, are recorded
          at cost and are included in other assets. Intangible assets of
          $311,626 and $235,956, net of accumulated amortization of $76,807 and
          $63,507 at June 30, 2000 and December 31, 1999, respectively, are
          being amortized on a straight-line basis over an estimated useful life
          of 10 years.

     (h)  STOCK COMPENSATION PLANS

          The Company applies the intrinsic value-based method of accounting
          prescribed by Accounting Principles Board (APB) Opinion No. 25,
          Accounting for Stock Issued to Employees, and related interpretations,
          in accounting for its fixed award stock options. As such, compensation
          expense is recorded only if the current market price of the underlying
          common stock exceeds the exercise price of the option on the date of
          grant. SFAS No. 123, Accounting for Stock-Based Compensation,
          established accounting and disclosure requirements using a fair
          value-based method of accounting for stock-based employee compensation
          plans. As allowed by SFAS No. 123, the Company has elected to continue
          to apply the intrinsic value-based method of accounting described
          above, and has adopted the disclosure requirements of SFAS No. 123.

     (i)  INCOME TAXES

          Income taxes are accounted for under the asset and liability method.
          Deferred tax assets and liabilities are recognized for the future tax
          consequences attributable to differences between the financial
          statement carrying amounts of existing assets and liabilities and
          their respective tax bases and net operating loss and tax credit
          carryforwards. Deferred tax assets and liabilities are measured using
          enacted tax rates expected to apply to taxable income in the years in
          which those temporary differences are expected to be recovered or
          settled. The effect on deferred tax assets and liabilities of a change
          in tax rates is recognized in income in the period that includes the
          enactment date.


                                      F-7
                                                                     (Continued)
<PAGE>   21

                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)


          Deferred tax assets are reduced by a valuation allowance for the
          portion of such assets for which it is more likely than not the amount
          will not be realized. Deferred tax assets and liabilities are
          classified as current or noncurrent based on the classification of the
          underlying asset or liability giving rise to the temporary difference
          or the expected date of utilization of the carryforwards.

     (j)  EARNINGS PER SHARE

          The Company computes earnings (loss) per share in accordance with the
          requirements of Statement of Financial Accounting Standards No. 128,
          Earnings Per Share (SFAS 128). SFAS 128 requires the disclosure of
          "basic" earnings per share and "diluted" earnings per share. Basic
          earnings per share is computed by dividing income available to common
          stockholders by the weighted average number of common shares
          outstanding. Diluted earnings per share is computed by dividing income
          available to common stockholders by the weighted average number of
          common shares outstanding increased for potentially dilutive common
          shares outstanding. The effect of potentially dilutive common shares
          represented by stock options outstanding (see note 6) was
          anti-dilutive for the six months ended June 30, 2000 and the year
          ended December 31, 1999.

     (k)  RESEARCH AND DEVELOPMENT AND ADVERTISING COSTS

          Research and development and advertising costs are expensed when
          incurred. Research and development expense for the six months ended
          June 30, 2000 and the year ended December 31, 1999 totaled $3,002,753
          and $4,852,518, respectively. This amount is comprised of product
          development expenses of $1,045,578 and $1,605,632, respectively, which
          are the design costs associated with customized products for customers
          and research expenses of $1,957,175 and $3,246,886, respectively,
          which are costs associated with the development of new product lines.
          Advertising costs were $163,518 and $325,337 for the six months ended
          June 30, 2000 and for the year ended December 31, 1999, respectively.

     (l)  LONG-LIVED ASSETS

          The Company reviews long-lived assets and identifiable intangibles for
          impairment whenever events or changes in circumstances indicate that
          the carrying amount of an asset may not be recoverable. Recoverability
          of assets to be held and used is measured by a comparison of the
          carrying amount of an asset to the undiscounted future net cash flows
          expected to be generated by the asset. If such assets are considered
          to be impaired, the impairment to be recognized is measured by the
          amount by which the carrying amount of the asset exceeds the fair
          value of the asset. Assets to be disposed of are reported at the lower
          of the carrying amount or fair value less costs to sell.

     (m)  REVENUE RECOGNITION

          Revenues are recognized at the time of shipment. Provisions are made
          for sales discounts and allowances at the time product sales are
          recognized.



                                      F-8
                                                                     (Continued)
<PAGE>   22

                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)


     (n)  PRODUCT WARRANTIES AND RETURNS

          Product warranties and returns are provided for in the period the
          products are sold. The Company provides a one-year warranty on most of
          its products. As the majority of its products are built to customer
          specifications, the Company generally does not accept product returns.
          Historically, warranty expense and product returns have been
          insignificant.

     (o)  UNAUDITED FINANCIAL INFORMATION

          The accompanying financial statements of the Company for the six
          months ended June 30, 2000 and as of and for the year ended December
          31, 1999 have been prepared without audit. In the opinion of
          management, the accompanying unaudited financial statements include
          all adjustments, consisting of normal recurring accruals, necessary
          for a fair presentation of the financial position and results of
          operations for the periods presented.

(2)  RESTATEMENT OF FINANCIAL STATEMENTS

     In late 1999, the Securities and Exchange Commission commenced an
     investigation into the Company's accounting and reporting practices in
     recent years. Subsequently, the Company announced that its previously
     issued financial statements should not be relied upon and that it would be
     amending its 1997 and subsequent financial statements. It also announced
     that the Audit Committee of the Board of Directors was conducting an
     investigation into the Company's accounting policies and practices which
     may result in further adjustments to the Company's financial statements.
     The preliminary results of the Company's investigation were reported to the
     Audit Committee in September 2000, and on September 12, 2000, the Company
     announced that it would restate its previously issued financial statements,
     reducing stockholders' equity by $30 to $35 million. That estimate included
     write-downs of assets and changes in liabilities identified in a
     preliminary report from an independent accounting firm engaged by the Audit
     Committee. Thereafter, the Company began a process of restating its
     previously issued financial statements. The adjustments to restate the
     Company's previously issued financial statements are numerous; however, the
     principal reasons and significant effects of the restatement adjustments on
     the accompanying 1999 financial statements from amounts previously reported
     are summarized as follows:




                                      F-9
                                                                     (Continued)
<PAGE>   23


                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)



<TABLE>
<CAPTION>
                                                INCREASE          INCREASE          INCREASE
                                              (DECREASE) IN     (DECREASE) IN     (DECREASE) IN
                                              STOCKHOLDERS'     STOCKHOLDERS'    NET INCOME FOR
                                              EQUITY AS OF      EQUITY AS OF     THE YEAR ENDED
                                              DECEMBER 31,       JANUARY 1,       DECEMBER 31,
                                                  1999              1999              1999
                                             --------------    --------------    --------------
<S>                                          <C>               <C>               <C>

Accounts receivable (a)                      $     (686,010)         (932,527)          246,517
Inventories (b)                                  (6,264,898)       (4,953,828)       (1,311,070)
Prepaid expenses (c)                             (1,137,526)       (1,214,751)           77,225
Property and equipment (d)                      (25,827,533)      (21,568,983)       (4,258,550)
Intangible and other assets (e)                  (3,055,271)       (2,389,403)         (665,868)
Accrued expenses (f)                             (2,207,704)       (1,923,127)         (393,903)
Deferred income taxes (g)                         3,730,000         3,904,386         2,097,670
Stock compensation expense (h)                           --                --          (112,156)
                                             --------------    --------------    --------------

        Total restatement adjustments        $  (35,448,942)      (29,078,233)       (4,320,135)
                                             ==============    ==============    ==============
</TABLE>

     (a)  ACCOUNTS RECEIVABLE

          An adjustment was recorded to increase the allowance for doubtful
          accounts and to write off uncollectible accounts receivable.

     (b)  INVENTORIES

          Inventories were adjusted to record work-in-process and finished goods
          inventory based on the actual cost of raw materials used in the
          manufacturing process and the labor and associated overhead required
          to complete the manufacturing processes.

          Inventories were also adjusted to increase the allowance for excess
          and obsolete raw materials and finished goods inventories.

          Inventories were further adjusted to eliminate amounts recorded for
          products that had failed to meet the customer specifications which had
          been returned to the Company.

     (c)  PREPAID EXPENSES

          Prepaid expenses were adjusted to record certain amounts as period
          expenses.

     (d)  PROPERTY AND EQUIPMENT

          Property and equipment balances were adjusted to charge to expense
          amounts capitalized relating to finished unit prototypes, and to
          reverse the related depreciation expense.


                                      F-10
                                                                     (Continued)
<PAGE>   24


                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)



          Property and equipment was also adjusted to eliminate amounts
          identified as labor and related overhead incurred to install
          machinery. The amounts capitalized were not supported by time records
          of the individuals involved in the installations and the overhead
          burden rate applied to payroll costs was not supported by any analysis
          of the underlying costs. Depreciation expense was adjusted for the
          revised carrying values.



          Adjustments were also made to eliminate certain amounts that should be
          recorded as period costs. Depreciation expense was adjusted for the
          revised carrying values.


          Finally, adjustments were made to increase depreciation to reflect a
          decrease in the estimated useful lives and salvage values of property
          and equipment.

     (e)  INTANGIBLE AND OTHER ASSETS

          Adjustments were recorded to charge to expense labor and overhead
          costs incurred to develop new products and apply for patents which had
          previously been capitalized.

          Other assets were also reduced for labor and overhead and third-party
          costs incurred in connection with the Company's ISO registration which
          should have been expensed as incurred.

          Additionally, adjustments were recorded to eliminate certain costs
          recorded as other assets which should have been expensed as period
          costs.

     (f)  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

          Accrued expenses were adjusted to record salaries, wages, bonuses and
          related payroll expenses in the proper period. Certain expenses were
          previously not accrued in the period to which they relate.

     (g)  DEFERRED INCOME TAXES

          The deferred tax liability was adjusted to reverse the deferred tax
          benefit recognized for stock options exercised which had previously
          been credited to additional paid-in capital in the amount of
          $2,272,057. The tax effect of the above adjustments was also recorded,
          which reduced the adjusted net deferred tax liability to zero. A net
          deferred tax asset was not recorded, as management believes that it is
          not more likely than not that the deferred tax assets will be
          realized. See note 5.

     (h)  STOCK COMPENSATION EXPENSE

          Stock compensation expense was recorded for options granted to
          employees during 1999, with exercise prices below the market price on
          the respective grant dates, for which compensation expense was not
          previously recognized.



                                      F-11
                                                                     (Continued)
<PAGE>   25


                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)



       The balance sheet at December 31, 1999 as previously reported and as
restated is summarized as follows:


<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                                    1999          DECEMBER 31,
                                                               (AS PREVIOUSLY        1999
                              ASSETS                              REPORTED)      (AS RESTATED)
                                                               --------------   --------------
<S>                                                            <C>                  <C>

Cash and cash equivalents                                      $   14,883,000       14,721,048
Trade accounts receivable, net                                      4,762,000        4,075,990
Inventories                                                        10,730,000        4,465,102
Prepaid expenses and other current assets                           1,160,000           22,474
Net property and equipment                                         32,157,000        6,329,467
Intangible and other assets                                         3,681,000          625,729
                                                               --------------   --------------

              Total assets                                     $   67,373,000       30,239,810
                                                               ==============   ==============

              LIABILITIES AND STOCKHOLDERS' EQUITY

Trade accounts payable                                         $    1,996,000        2,385,130
Accrued compensation                                                  576,000        2,164,644
Other accrued expenses                                                 26,000           56,106
Notes payable and current installments of
    long-term obligations                                           1,108,000       11,159,081
Long-term obligations                                              10,115,000          101,791
Deferred income taxes                                               3,730,000               --
Stockholders' equity                                               49,822,000       14,373,058
                                                               --------------   --------------

              Total liabilities and stockholders' equity       $   67,373,000       30,239,810
                                                               ==============   ==============
</TABLE>



                                      F-12
                                                                     (Continued)
<PAGE>   26


                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)


The income statement for the year ended December 31, 1999 as previously reported
and as restated is summarized as follows:

<TABLE>
<CAPTION>
                                                       YEAR ENDED
                                                      DECEMBER 31,        YEAR ENDED
                                                           1999          DECEMBER 31,
                                                     (AS PREVIOUSLY         1999
                                                        REPORTED)       (AS RESTATED)
                                                     --------------    --------------
<S>                                                  <C>               <C>

Net sales                                            $   24,281,000        24,212,249

Cost of goods sold                                       11,007,000        12,811,300
                                                     --------------    --------------

                  Gross profit                           13,274,000        11,400,949
                                                     --------------    --------------

Operating expenses:
    Selling                                               2,750,000         3,165,746
    General and administrative                            1,675,000         3,650,742
    Research and development                              2,491,000         4,852,518
                                                     --------------    --------------

              Total operating expenses                    6,916,000        11,669,006
                                                     --------------    --------------

              Operating income (loss)                     6,358,000          (268,057)

Other income (expense), net                                (857,000)         (649,078)
                                                     --------------    --------------

              Income (loss) before income taxes           5,501,000          (917,135)

Income tax expense                                       (2,098,000)               --
                                                     --------------    --------------

              Net income (loss)                      $    3,403,000          (917,135)

Income (loss) per share - basic                      $         0.60             (0.16)
                                                     ==============    ==============

Income (loss) per share - diluted                    $         0.57             (0.16)
                                                     ==============    ==============
</TABLE>



                                      F-13
                                                                     (Continued)
<PAGE>   27


                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)



(3)  INVENTORIES

     Inventories, net of allowances for excess and obsolete items, consist of
     the following:

<TABLE>
<CAPTION>
                                JUNE 30,        DECEMBER 31,
                                  2000              1999
                            ---------------   ---------------
<S>                         <C>               <C>

Finished goods              $       363,549           429,768
Work-in-process                   1,226,984           866,494
Raw materials                     5,844,127         3,168,840
                            ---------------   ---------------

                            $     7,434,660         4,465,102
                            ===============   ===============
</TABLE>

(4)  NOTES PAYABLE AND LONG-TERM OBLIGATIONS

     Notes payable and long-term obligations consist of the following:

<TABLE>
<CAPTION>
                                                              JUNE 30,        DECEMBER 31,
                                                                2000             1999
                                                          ---------------   ---------------

<S>                                                       <C>               <C>
Notes payable under Revolving Credit Facility (a)         $    11,500,000                --
Notes payable under former credit facility (a)                         --        11,103,408
Promissory notes (b)                                               66,756            78,827
Capital leases (c)                                                 91,296            78,637
                                                          ---------------   ---------------

                                                               11,658,052        11,260,872
Less current installments                                      11,566,386        11,159,081
                                                          ---------------   ---------------

         Long-term obligations                            $        91,666           101,791
                                                          ===============   ===============
</TABLE>

Future maturities of notes payable and long-term obligations as of June 30, 2000
are as follows:

<TABLE>
<CAPTION>
Year ending June 30:
<S>                                       <C>
    2001                                  $     11,566,386
    2002                                            63,649
    2003                                            26,528
    2004                                             1,489
                                          ----------------

                                          $     11,658,052
                                          ================
</TABLE>

     (a)  BANK CREDIT FACILITIES

          On March 24, 2000, the Company entered into a $20,000,000 Revolving
          Credit Facility (the Loan Agreement). The Loan Agreement provided for
          interest based on the prime rate or LIBOR plus a margin, and was
          originally due September 30, 2002. Interest was payable on the



                                      F-14
                                                                     (Continued)
<PAGE>   28


                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)



          line of credit at an annual rate of 9.5% at June 30, 2000. The Company
          pays an annual commitment fee of .15% of the average unused portion of
          the line, payable quarterly. The loan is secured by substantially all
          of the Company's accounts receivable, inventories and equipment.

          Proceeds from the Loan Agreement were used to repay the amount
          outstanding under the prior credit facilities, which included a line
          of credit, a term loan, and a revolving equipment term loan. Interest
          on the loans ranged from 6.1% to 7.75% at December 31, 1999. The loans
          were secured by receivables, inventory, property and equipment. The
          loans are now classified as current at December 31, 1999 because the
          Company has determined that it was in default of certain provisions of
          the various related loan agreements on that date.

          As of June 30, 2000, the Company continued to be in default of certain
          covenants under the Loan Agreement. Upon default by the Company, the
          lender may call the loan at any time. On September 28, 2000, the
          Company entered into a forbearance agreement with the lender that,
          among other matters, delayed the lender's right to accelerate payment
          of the loan to December 15, 2000. On December 15, 2000 the Company
          entered into a second forbearance agreement that delayed the lender's
          right to accelerate payment of the loan to March 31, 2001.
          Accordingly, the amounts outstanding as of June 30, 2000 have been
          classified as current. The second forbearance agreement requires the
          Company to maintain a borrowing base of at least $8,800,000,
          calculated using a formula based on inventories, accounts receivable
          aged less than 90 days, and equipment. The Company was required to
          reduce the amount outstanding under the loan to $8,800,000 on December
          15, 2000. The second forbearance agreement also increased the interest
          rate to the prime rate plus 2% through March 31, 2001.

          The Company is seeking a new lender to provide a long-term credit
          facility with more favorable terms and more capacity than is available
          under the forbearance agreement with its current lender. There can be
          no assurance, however, that the Company will be successful in
          obtaining a new lender or, if it is not successful, in negotiating
          additional forbearance agreements with its current lender.

     (b)  PROMISSORY NOTES

          The Company has financed the purchase of vehicles with promissory
          notes bearing interest at rates ranging from 7.5% to 8.5%. Monthly
          principal and interest payments totaling $2,651 are required. The
          notes mature from March 2002 through July 2003.

     (c)  LEASES

          The Company is obligated under various capital leases for certain
          machinery and equipment that expire at various dates during the next
          three years. The Company also has noncancelable operating leases
          primarily for corporate office and manufacturing facilities. Rent
          expense was $388,645 for the six months ended June 30, 2000 and
          $786,389 for the year ended December 31, 1999.



                                      F-15
                                                                     (Continued)
<PAGE>   29


                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)


          The Company leases certain corporate office and manufacturing
          facilities under long-term operating leases from the Company's Chief
          Scientific Officer and former chairman and from a partnership in which
          he is a partner. The leases expire in 2002 through 2005 and contain
          options to extend the terms of the leases. Total rent expense
          associated with these leases for the six months ended June 30, 2000
          was $145,878 and for the year ended December 31, 1999, was $289,800.

          Future minimum capital lease payments and future minimum lease
          payments under noncancelable operating leases (with initial or
          remaining lease terms in excess of one year) as of June 30, 2000 are
          as follows:


<TABLE>
<CAPTION>
                                                            CAPITAL         OPERATING
                                                             LEASES           LEASES
                                                          -------------   -------------
<S>                                                       <C>             <C>

Year ending June 30,
  2001                                                    $      45,629         824,760
  2002                                                           43,694         831,886
  2003                                                           12,072         702,346
  2004                                                               --         665,033
  2005                                                               --         508,528
    Thereafter                                                       --       3,049,096
                                                          -------------   -------------

             Total minimum lease payments                       101,395   $   6,581,649
                                                                          =============
Less amount representing interest                                10,099
                                                          -------------
             Present value of net minimum capital
                 lease payments                                  91,296
Less current installments of obligations under
    capital leases                                               38,995
                                                          -------------

             Obligations under capital leases,
                 excluding current installments           $      52,301
                                                          =============
</TABLE>


(5)  INCOME TAXES

     For the six months ended June 30, 2000, and for the year ended December 31,
     1999, the Company recorded no provision for federal or state income taxes
     since a valuation allowance was provided for the income tax benefit of the
     net operating losses incurred during those periods.



                                      F-16
                                                                     (Continued)
<PAGE>   30



                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)



Income tax benefit attributable to net loss differed from the amounts computed
by applying the U.S. federal income tax rate of 35% to pretax loss as a result
of the following:

<TABLE>
<CAPTION>
                                                                       SIX MONTHS        YEAR ENDED
                                                                     ENDED JUNE 30,     DECEMBER 31,
                                                                         2000               1999
                                                                    ---------------    ---------------
<S>                                                                 <C>                <C>

Income tax benefit at federal statutory tax rate                    $      (412,738)          (320,997)
State income taxes, net of federal tax effect                               (36,409)           (28,317)
Officers' life insurance                                                     18,027             32,804
Non-deductible meals and entertainment expenses                               1,613              3,848
Other                                                                       (14,484)            45,828
Increase in valuation allowance for net deferred tax assets                 443,991            266,834
                                                                    ---------------    ---------------

Actual income tax expense (benefit)                                 $            --                 --
                                                                    ===============    ===============
</TABLE>

Significant components of deferred tax balances were as follows:


<TABLE>
<CAPTION>
                                                                       JUNE 30,       DECEMBER 31,
                                                                         2000            1999
                                                                    -------------    -------------
<S>                                                                 <C>              <C>

Deferred tax assets:
   Allowance for doubtful accounts recognized for
      financial reporting purposes                                  $      66,514           79,281
   Inventory reserve recognized for financial
      reporting purposes                                                1,012,413          843,467
   Intangible assets, due to differences in amortization
      methods                                                              11,674           10,172
   Other accounts and reserves accrued for financial
      reporting purposes                                                   27,059          238,540
   Stock compensation expense recognized for financial
      reporting purposes                                                  538,648               --
   Net operating loss carryforwards                                    10,675,551       10,029,534
                                                                    -------------    -------------

                                                                       12,331,859       11,200,994
   Less valuation allowance                                           (12,069,708)     (10,944,968)
                                                                    -------------    -------------

             Total deferred tax assets                              $     262,151          256,026
                                                                    =============    =============

Deferred tax liabilities:
   Property and equipment, due to differences in
      depreciation methods                                          $    (262,151)        (256,026)
                                                                    -------------    -------------

             Total deferred tax liabilities                              (262,151)        (256,026)
                                                                    -------------    -------------

             Net deferred tax assets (liabilities)                  $          --               --
                                                                    =============    =============
 </TABLE>


                                      F-17
                                                                     (Continued)
<PAGE>   31



                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)



     In assessing the realizability of deferred tax assets, management considers
     whether it is more likely than not that some portion or all of the deferred
     tax assets will not be realized. The ultimate realization of deferred tax
     assets is dependent upon the generation of future taxable income during
     periods in which those temporary differences become deductible. Management
     considers projected future taxable income and tax planning strategies in
     making this assessment. Based upon management's projections of future
     taxable income and future taxable income generated from the reversal of
     deferred tax liabilities over the periods in which the deferred tax assets
     are deductible, management does not believe that it is more likely than not
     that the Company will realize the benefits of these deductible differences.
     Accordingly, a valuation allowance equal to the balance of net deferred tax
     assets has been recognized as of June 30, 2000 and December 31, 1999. The
     increase in the valuation allowance for net deferred tax assets for the six
     months ended June 30, 2000 was $1,124,740, including $680,749 attributable
     to deductions for stock options exercised in excess of the compensation
     recorded for financial reporting purposes.

     The Company has net operating loss carryforwards for federal income tax
     purposes of approximately $26,333,000 at December 31, 1999, expiring
     through 2019. A portion of the net operating loss carryforwards relate to
     excess stock option deductions for tax purposes. The valuation allowance at
     December 31, 1999 includes approximately $1,887,000 attributable to excess
     stock option deductions. If realized, the benefit will be recorded as an
     increase in additional paid-in capital.

(6)  STOCK COMPENSATION PLANS


     The Company has three stock-based compensation plans. The Company applies
     APB No. 25 in accounting for its stock compensation plans. During the six
     months ended June 30, 2000 and the year ended December 31, 1999, the
     Company recognized employee stock compensation expense under these plans of
     $509,066 and $305,405, respectively. Had compensation cost been determined
     on the basis of fair value pursuant to SFAS No. 123, net loss and loss per
     share would have been increased to the following pro forma amounts:


<TABLE>
<CAPTION>
                            SIX MONTHS ENDED      YEAR ENDED
                                JUNE 30,         DECEMBER 31,
                                  2000               1999
                            ----------------   ---------------
<S>                         <C>                <C>

Net loss:
   As Reported              $    (1,179,252)          (917,135)
                            ===============    ===============

   Pro Forma                $    (2,234,995)        (2,364,411)
                            ===============    ===============

Loss Per Share:
   As Reported              $         (0.17)             (0.16)
                            ===============    ===============

   Pro Forma                $         (0.32)             (0.42)
                            ===============    ===============
</TABLE>




                                      F-18
                                                                     (Continued)
<PAGE>   32



                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)



     (a)  STOCK OPTION PLAN

          The Company has a stock option plan which provides for the grant of
          incentive stock options, nonqualified stock options and stock
          appreciation rights to officers, directors or employees of, as well as
          advisers and consultants to, the Company.

          The Company has reserved 3,624,000 shares of its common stock for
          issuance upon exercise of options and rights granted under the plan.
          In March 2000, the stock option plan was amended to increase the
          number of shares reserved under the plan from 3,270,000 to 3,624,000.
          Subsequently, this amendment was approved by the shareholders at the
          Company's Annual Meeting of Shareholders held on June 30, 2000.
          Typically, rights and options have been granted which vest over three
          to five years, become fully vested upon a change in control of the
          Company, and expire 10 years from the date of issuance. Certain
          options granted to senior management were vested upon issuance or over
          a shorter vesting period. The exercise price was equal to the market
          value of the Company's common stock on the grant date or the average
          of the market value over a stated period of time prior to the grant
          date.

          For stock options granted at an exercise price less than the market
          value of the common stock at the date of grant, stock compensation
          cost is recorded based on the difference between the market value of
          the common stock at the date of grant and the exercise price of the
          option. For options that are vested on the date of grant, the related
          stock compensation cost is expensed immediately. Unamortized employee
          stock compensation cost is recorded as a separate component of
          stockholders' equity and amortized to expense over the vesting period
          of the related options.

          The plan provides that each non-executive member of the Board of
          Directors receive options to purchase 500 shares of common stock for
          attending each meeting of the Board of Directors, a committee of the
          Board, or a meeting with management of the Company or other directors
          for Company business or affairs.


                                      F-19
                                                                     (Continued)
<PAGE>   33


                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)


Following is a summary of stock option activity during the year ended December
31, 1999 and the six months ended June 30, 2000:


<TABLE>
<CAPTION>
                                                                       WEIGHTED
                                                     NUMBER OF          AVERAGE
                                                      OPTIONS        EXERCISE PRICE
                                                 ---------------    ---------------
<S>                                              <C>                <C>

Outstanding at January 1, 1999                         1,758,620    $          7.91
    Granted:
       At less than market price                         355,397              18.62
       At market price                                    20,000              10.00
       At greater than market price                      209,500               6.63
    Exercised                                           (788,193)              6.76
    Forfeited                                            (28,001)              7.81
                                                 ---------------

Outstanding at December 31, 1999                       1,527,323              10.73
    Granted at market price                               32,000              16.35
    Exercised                                           (116,569)              7.99
    Forfeited                                           (115,169)             13.75
                                                 ---------------

Outstanding at June 30, 2000                           1,327,585              10.84
                                                 ===============

Options exercisable at December 31, 1999                 551,542               8.52
                                                 ===============

Options exercisable at June 30, 2000                     667,062               8.90
                                                 ===============
</TABLE>


Following is a summary of the status of stock options outstanding at June 30,
2000:


<TABLE>
<CAPTION>
                                              OUTSTANDING OPTIONS              EXERCISABLE OPTIONS
                                        -------------------------------   ----------------------------
                                           WEIGHTED
                                            AVERAGE         WEIGHTED                        WEIGHTED
                                           REMAINING         AVERAGE                        AVERAGE
         EXERCISE                         CONTRACTUAL       EXERCISE                        EXERCISE
       PRICE RANGE         NUMBER            LIFE             PRICE          NUMBER          PRICE
     ---------------     ----------     ---------------   ------------    -----------    -------------
<S>                      <C>            <C>               <C>             <C>            <C>

     $ 0.00 - 4.00           25,750          3.3          $    2.21           25,750     $    2.21
       4.00 - 6.00            3,000          4.6               4.73            3,000          4.73
       6.00 - 8.00          151,501          8.4               6.71           36,501          6.81
       8.00 - 10.00         813,437          7.0               8.82          560,311          8.86
      10.00 - 15.00          25,000          8.7              12.21           25,000         12.21
      15.00 - 20.00         302,897          9.0              18.69           10,500         16.55
      20.00 - 33.63           6,000          9.6              28.48            6,000         28.48
                         ----------                                       ----------

                          1,327,585          7.6          $   10.84          667,062     $    8.90
                         ==========                                       ==========
</TABLE>



                                      F-20
                                                                     (Continued)
<PAGE>   34


                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)



          In December 2000, the Company's Compensation Committee reformed the
          terms of stock options to purchase 350,397 shares which had been
          granted by the Committee on December 27, 1999 to change the option
          exercise price from a 60-day average price of $18.764 to $34.50, the
          market price of the Company's common stock on the date of grant. After
          the reformation, the Company informed the holders of the affected
          options of the change. All of the option holders expressly
          acknowledged and accepted the change in the option exercise price. As
          a result of the change, the Company recorded an adjustment in December
          2000 of $3,533,107 to reverse unamortized compensation cost at
          relating to these options.

          Compensation cost for the SFAS 123 pro forma amounts disclosed above
          was estimated using the Black-Scholes option-pricing model with the
          following assumptions for the six months ended June 30, 2000: no
          expected dividend yield, volatility of 72%, risk free interest rate of
          5.7% and an expected life of 5.8 years. Assumptions for the year ended
          December 31, 1999 were: no expected dividend yield, volatility of 72%,
          risk free interest rate of 4.9% and an expected life of 5.3 years. The
          weighted average fair value of options granted at market price during
          the six months ended June 30, 2000 was $10.95 and during the year
          ended December 31, 1999 was $6.06. During the year ended December 31,
          1999, the weighted average fair value of options granted at less then
          market price was $25.90 and the weighted average fair value of options
          granted at greater than market price was $3.91.

     (b)  EMPLOYEE STOCK PURCHASE PLAN

          In 1995, the Company adopted an employee stock purchase plan. Eligible
          employees may designate up to ten percent of their earnings, through
          payroll deductions, to purchase shares of the Company's common stock.
          The purchase price is equal to 85 percent of the fair market value of
          the common stock on specified dates. A total of 800,000 common shares
          have been reserved for issuance under the plan, and the maximum number
          of shares to be issued in any annual period is 200,000. The plan is
          considered non-compensatory under APB No. 25, and therefore no expense
          was reported in the Company's statements of operations.

          The plan is considered compensatory under SFAS No. 123,and therefore,
          compensation cost for the SFAS No. 123 pro forma amounts disclosed
          above was estimated using the Black-Scholes option-pricing model with
          the following assumptions for the six months ended June 30, 2000: no
          expected dividend yield, volatility of 72%, risk free interest rate of
          5.3% and an expected life of 1.0 year. Assumptions for the year ended
          December 31, 1999 were: no expected dividend yield, volatility of 72%,
          risk free interest rate of 4.3% and an expected life of 1.0 year. The
          weighted-average fair value of stock purchase rights granted during
          the six months ended June 30, 2000 was $0.38 and during the year ended
          December 31, 1999 was $1.99.



                                      F-21
                                                                     (Continued)
<PAGE>   35


                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)




     (c)  STOCK AWARD PLAN

          In 1996, the Company adopted a stock award plan under which shares of
          common stock can be awarded to the Company's officers, directors,
          employees, consultants, and advisors. The Company reserved 100,000
          shares of its common stock for issuance under the stock award plan.
          Stock compensation cost is recognized based on the market value of the
          common stock on the date of the award. During the year ended December
          31, 1999, 12,500 shares of common stock were issued to two officers as
          compensation for their performance in 1998. The fair market value of
          the shares issued in 1999 of $75,000 was recorded as compensation
          expense in 1998.

          The plan includes a provision for automatic awards of 50 shares per
          month to non-management members of the Company's Board of Directors
          who serve on the Company's audit or compensation committees. During
          the six months ended June 30, 2000, 900 shares with a fair market
          value of $16,457 were issued under this provision of the plan. During
          the year ended December 31, 1999, 1,800 shares with a fair market
          value of $17,048 were issued under this provision of the plan.

(7)  PROFIT SHARING AND RETIREMENT PLANS

     During 1990, the Company adopted a qualified profit sharing plan for its
     employees. Annual contributions to the plan, which may be in the form of
     cash or shares of the Company's common stock, are determined by the Board
     of Directors in its sole discretion. During the six months ended June 30,
     2000, the Company contributed $14,055 in cash to the Plan and during the
     year ended December 31, 1999, the Company contributed 12,851 shares of
     common stock valued at $101,201 to the Plan.

     During 1998, the Company adopted a 401(k) plan to which employees may
     contribute up to 15 percent of their pay. The Company may make
     discretionary matching contributions to the plan. No matching contributions
     were made during the six months ended June 30, 2000 or during the year
     ended December 31, 1999.

(8)  EMPLOYMENT AGREEMENTS

     Effective June 1, 1997, the Company entered into four-year employment
     agreements with two officers which provide for minimum annual base salaries
     during the officers' employment with the Company, and severance pay in the
     event of termination. In the case of involuntary termination by the
     Company, severance payments are equal to the greater of the officer's
     annual base salary multiplied by the remaining term of the agreement or
     2.99 times the officer's average annual compensation over the last five
     years. In the case of voluntary termination or retirement, the senior
     officer will be entitled to (i) one-half of his annual base salary as
     severance pay, (ii) be engaged as a consultant for a period of up to five
     years for which he is paid a fee equal to 50 percent of his annual base
     salary upon termination of employment, and (iii) an annual retirement
     benefit equal to 25 percent of his annual base salary payable during the
     period he provides consulting services to the



                                      F-22
                                                                     (Continued)
<PAGE>   36


                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)


     Company. All unvested stock awards and options and stock appreciation
     rights previously granted to the officers will fully vest in the event of a
     change of control of the Company or an involuntary termination. In
     addition, the officers have agreed they will not compete against the
     Company for a period of one year after termination or expiration of their
     respective employment agreements, or the period covered by any consulting
     arrangement or retirement benefit, whichever is greater.

     Effective August 1, 2000, one of the officers entered into a Termination
     and Consulting Agreement, the terms of which supersede his employment
     agreement. The Company agreed to engage the officer as a consultant for the
     period from August 1, 2000 through July 31, 2001. The consultant is to
     receive compensation of $195,000 along with certain other benefits.

     In September 2000, the Company also entered into stay bonus agreements with
     a number of key personnel. The agreements provide for bonuses to be paid
     quarterly through August 31, 2001. The maximum amount payable under these
     agreements totals approximately $500,000.

     The Company is also a party to employment agreements with four other
     officers which provide for minimum base salaries ranging from $125,000 to
     $150,000 for terms of two to three years. The agreements provide for
     severance pay based on their annual salary for periods ranging from six
     months to one year in the event of involuntary termination.

(9)  RELATED PARTY TRANSACTIONS

     As described in note 4, the Company leases certain facilities from the
     Company's chairman and a partnership in which he is a partner.

     The Company is contingently liable for guarantees of indebtedness owed by
     former and current senior officers of the Company to a former officer. The
     maximum amount of this contingent liability at June 30, 2000 was
     approximately $169,000.

(10) FINANCIAL INSTRUMENTS

     At June 30, 2000 and December 31, 1999, the Company had approximately
     $11,028,728 and $8,982,389, respectively, invested in a U.S. government
     securities money market fund. The money market fund invests in United
     States government securities and is not otherwise federally insured.

     Disclosures of fair value information about certain financial instruments
     is presented in accordance with the requirements of Statement of Financial
     Accounting Standards No. 107, Disclosures about Fair Value of Financial
     Instruments. The carrying amounts of cash and cash equivalents, accounts
     receivable and accounts payable approximate fair value because of the short
     maturity of these instruments. The carrying amounts of the Company's notes
     payable and long-term obligations at December 31, 1999 and June 30, 2000
     approximate their fair values since the instruments carry a variable rate
     of interest or a rate that approximates current rates.


                                      F-23
                                                                     (Continued)
<PAGE>   37


                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)


(11) SIGNIFICANT CUSTOMERS

     The Company's products are sold to original equipment manufacturers of
     communications equipment, either in commercial or military markets. During
     the six months ended June 30, 2000, the Company's three largest customers
     accounted for approximately 20.4%, 14.3% and 13.5%, respectively, of total
     net sales. Accounts receivable at June 30, 2000 for these three customers
     were $678,052, $1,451,231 and $601,748, respectively. During the year ended
     December 31, 1999, the Company's two largest customers accounted for
     approximately 21.6% and 14.8%, respectively, of total sales. Accounts
     receivable at December 31, 1999 for these two customers were $113,890 and
     $1,398,526, respectively. The Company performs credit evaluations of its
     customers but generally does not require collateral. Receivables due from
     foreign customers are generally insured by a private indemnity company;
     otherwise, letters of credit are required of foreign customers.

     The Company produces and sells electronic components in five product lines.
     Sales for each of the product lines for the six months ended June 30, 2000
     and for the year ended December 31, 1999 were as follows:

<TABLE>
<CAPTION>
                                             SIX MONTHS ENDED      YEAR ENDED
                                                 JUNE 30,         DECEMBER 31,
                                                   2000               1999
                                             ----------------   ---------------
<S>                                          <C>                <C>

Commercial Signal Source Components          $    14,252,154        18,231,425
Hi-Rel Signal Source Components                    1,238,209         2,323,656
Military Signal Processing Components                667,345         1,628,880
Radio Frequency Passive Components                   643,599         1,601,123
Commercial Special Assemblies                        356,234           427,165
                                             ---------------   ---------------

                                             $    17,157,541        24,212,249
                                             ===============   ===============
</TABLE>

     The Company attributes sales to foreign customers based on the country to
     which the products are shipped. During the six months ended June 30, 2000,
     and the year ended December 31, 1999, the Company made sales to customers
     located in foreign countries as follows:

<TABLE>
<CAPTION>
                                             SIX MONTHS ENDED      YEAR ENDED
                                                 JUNE 30,         DECEMBER 31,
                                                   2000               1999
                                             ----------------   ---------------
<S>                                          <C>                <C>

England                                      $     3,937,548         6,121,104
Finland                                            1,296,550         1,698,072
Italy                                              1,142,634           399,066
Germany                                            1,141,784           460,653
Canada                                               566,983           722,485
Sweden                                               481,480         1,432,230
Other                                              1,125,947         1,986,762
                                             ---------------   ---------------

                                             $     9,692,926        12,820,372
                                             ===============   ===============
</TABLE>


                                      F-24
                                                                     (Continued)
<PAGE>   38


                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)


(12) EXPENSES OF ACCOUNTING RESTATEMENTS AND RELATED MATTERS

     As discussed in note 2, in early 2000, management of the Company commenced
     efforts to restate its previously issued financial statements after being
     notified by the Securities and Exchange Commission (the Commission) that
     the Commission was investigating its accounting and reporting practices.
     Certain costs incurred in conjunction with these efforts have been
     separately classified on the Company's statements of operations as
     "expenses relating to accounting restatements and the related shareholder
     litigation". Expenses included in this classification include the cost of
     external counsel for services provided in connection with shareholder
     lawsuits and the Commission's investigation of the Company, the cost of
     certain consultants and temporary labor hired to assist in the accounting
     restatements, and reimbursements to current and former employees of the
     Company for their cost of counsel.

(13) LITIGATION, COMMITMENTS AND CONTINGENCIES


     The Commission is currently investigating the Company to determine whether
     there were violations of the federal securities laws by the Company or any
     of its officers, directors, or employees. The Company believes that the
     Commission's investigation is focused on the Company's prior financial
     reporting and its accounting practices and procedures. The Company has been
     providing documents and other information requested by the Commission staff
     in the course of its investigation. The Commission has not brought an
     action against the Company, but it may do so in the future. In such an
     event, the Commission may seek injunctive or other relief from the Company.


     A number of private shareholder class actions alleging violations of
     federal securities laws were filed against the Company in the U.S. District
     Court for the District of Colorado beginning in June 2000. On August 3,
     2000, all of these class actions were consolidated into a single action.
     Lead counsel for the representatives of the putative plaintiff class have
     been appointed but, pursuant to the court's order the Company's obligation
     to respond to the complaints has been deferred until such time as the lead
     plaintiff files an amended complaint. As of January 19, 2001, an amended
     complaint has not yet been filed and a class has not been certified.

     The consolidated class action complaints were filed on behalf of persons
     who purchased shares of the Company's stock between 1997 and sometime in
     2000 (the Class Period). All of the complaints name the Company, David G.
     Sherman, the Company's former President and Chief Executive Officer, Joseph
     H. Kiser, the Company's Chief Scientific Officer and Jon L. Clark, the
     Company's former Chief Financial Officer, as defendants. Some of the
     complaints also name Derek L. Bailey, the Company's Executive Vice
     President of Sales and Marketing, as an additional defendant. The various
     complaints allege that the Company's financial statements for the years
     1997, 1998 and 1999 did not conform to generally accepted accounting
     principles and were materially false and misleading. The complaints allege
     violations of Section 10(b) of the Securities Exchange Act of 1934 and seek
     to impose "control person" liability on the individual defendants pursuant
     to Section 20(a) of the Exchange Act. The complaints generally seek
     compensatory damages in an unspecified amount, attorneys' fees and costs of
     suit, equitable and injunctive relief as permitted by law,



                                      F-25
                                                                     (Continued)
<PAGE>   39


                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)


     including the imposition of a constructive trust on the assets of the
     individual defendants, and any other relief the court deems just and
     proper.

     Some of the complaints allege that the individual defendants sold stock
     throughout the Class Period as part of an alleged scheme to defraud the
     public. Some complaints specifically allege that the Company instituted a
     policy of "bill and hold," in which the Company would book and report
     revenue for the sale of its products even though the Company retained
     physical possession of the product. Some complaints also cite a May 18,
     2000 Denver newspaper article in which Mr. Sherman stated that he believed
     that the restatements would have little effect on the Company's 1998 and
     1999 earnings.

     The parties have had preliminary discussions regarding the possibility of
     settlement. There can be no assurance, however, that a settlement
     acceptable to the Company can be reached or that any settlement reached
     will not have a material adverse effect on the Company. In addition, the
     individual defendants in the class action may have claims against the
     Company for indemnification of their cost of defense, which claims may be
     material.

     On August 4, 2000, a shareholder derivative action was filed purportedly on
     behalf of the Company in Colorado state court in Denver. The Company is
     named in that action as a nominal defendant. A shareholder derivative
     action is a state law action in which shareholders assert claims against
     third parties on behalf of the corporation. The derivative complaint
     alleges some of the same facts as were asserted in the class actions in
     federal court and claims that those facts demonstrate that the officers
     named in the class actions, as well as the Company's directors, breached
     their fiduciary duties to the Company and the shareholders in connection
     with the Company's erroneous reporting of its financial results.

     The Company and the other defendants have moved to dismiss the derivative
     action. In its motion, the Company argues that the plaintiffs have not
     substantiated the allegations for a court to allow the derivative
     plaintiffs to bypass the Board of Directors in pursuing claims for the
     benefit of the Company. The Company believes that the derivative plaintiffs
     should not be permitted to usurp the function of the Board of Directors
     under the present circumstances. These circumstances include the internal
     investigation of the prior accounting irregularities by the Audit Committee
     of the Board of Directors, the retention of an independent accounting firm
     to assist the Committee with that investigation, the termination of the
     employment of the Company's former President, Chief Financial Officer and
     Controller, the installation of a new management team, the retention of new
     independent accountants, and the reformation of the Company's Board of
     Directors to exclude all officers and employees from the Board. The court
     has not yet ruled on the motion to dismiss.

     As of January 19, 2001, the Company is unable to reasonably estimate the
     possible loss associated with these matters.



                                      F-26
                                                                     (Continued)
<PAGE>   40


                              VARI-L COMPANY, INC.

                          Notes to Financial Statements

                       June 30, 2000 and December 31, 1999

           (Information for the six months ended June 30, 2000 and as
            of and for the year ended December 31, 1999 is unaudited)



     The Company is a party to other legal proceedings and claims in the
     ordinary course of its business. The Company believes that the outcome of
     these other matters will not have a material adverse affect on its
     financial condition, results of operations or liquidity.

(14) COMPARATIVE FINANCIAL INFORMATION

     Comparative unaudited statement of operations information for the six
     months ended June 30, 1999, as previously reported and as restated (see
     note 2) is as follows

<TABLE>
<CAPTION>
                                                       SIX MONTHS ENDED
                                                            JUNE 30,      SIX MONTHS ENDED
                                                              1999             JUNE 30,
                                                        (AS PREVIOUSLY          1999
                                                           REPORTED)        (AS RESTATED)
                                                       ----------------   ----------------
<S>                                                    <C>                <C>

Net sales                                              $    10,773,000         10,773,177

Cost of goods sold                                           4,814,000          5,581,693
                                                       ---------------    ---------------

                  Gross profit                               5,959,000          5,191,484
                                                       ---------------    ---------------

Operating expenses:
    Selling                                                  1,273,000          1,478,306
    General and administrative                               1,062,000          1,654,915
    Research and development                                   718,000          2,209,015
                                                       ---------------    ---------------

              Total operating expenses                       3,053,000          5,342,236
                                                       ---------------    ---------------

              Operating income (loss)                        2,906,000           (150,752)

Other income (expense), net                                   (480,000)          (367,220)
                                                       ---------------    ---------------

              Income (loss) before income taxes              2,426,000           (517,972)

Income tax expense                                            (925,000)                --
                                                       ---------------    ---------------

              Net income (loss)                        $     1,501,000           (517,972)
                                                       ===============    ===============
</TABLE>



                                      F-27
<PAGE>   41



                              VARI-L COMPANY, INC.

                Schedule II - Valuation and Qualifying Accounts

                                  (unaudited)



<TABLE>
<CAPTION>
                                                     Balance at                                             Balance at
                                                     beginning                                                 end
Description                                          of period       Additions (a)     Deductions (b)       of period
------------------------------------------        ---------------   ---------------   ---------------    ---------------
<S>                                               <C>               <C>               <C>                <C>

Six months ended June 30, 2000:
    Allowance for doubtful accounts               $       208,156            78,135          (111,657)           174,634
    Allowance for excess and obsolete
       inventories                                      2,214,550           443,573                --          2,658,123
    Reserve for product warranties
       and returns                                          7,500            35,074                --             42,574
                                                  ---------------   ---------------   ---------------    ---------------

                Total                             $     2,430,206           556,782          (111,657)         2,875,331
                                                  ===============   ===============   ===============    ===============

Year ended December 31, 1999 (as restated):
       Allowance for doubtful accounts            $        86,151           215,788           (93,783)           208,156
       Allowance for excess and
          obsolete inventories                          2,171,602            61,621           (18,673)         2,214,550
       Reserve for product warranties
          and returns                                          --             7,500                --              7,500
                                                  ---------------   ---------------   ---------------    ---------------

                Total                             $     2,257,753           284,909          (112,456)         2,430,206
                                                  ===============   ===============   ===============    ===============
</TABLE>


Notes:

(a)  Amounts charged to costs and expenses.

(b)  Bad debt write-offs and charges to reserves.


                                      F-28
<PAGE>   42


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market

The Company's common stock is quoted on the Pink Sheets LLC under the symbol
"VARL". The Company's common stock was formerly traded on the Nasdaq National
Market until July 7, 2000 when it was suspended by Nasdaq. During the period
from July 7, 2000 through September 9, 2000 when the stock was delisted by
Nasdaq, there was no active public trading market for the Company's stock. It
was first quoted on the Pink Sheets on September 11, 2000. The following table
sets forth the high and low prices for the common stock for the periods
indicated:

<TABLE>
<CAPTION>
                                                       High            Low
                                                  -------------   -------------
NASDAQ National Market:

1999
----

<S>                                                 <C>          <C>
Quarter ended March 31, 1999                        $ 8-1/8          $5-7/8
Quarter ended June 30, 1999                         $   9            $6-1/8
Quarter ended September 30, 1999                    $13-13/16        $8-3/4
Quarter ended December 31, 1999                     $36-7/16         $  10

2000
----

Quarter ended March 31, 2000                        $   34           $20-15/16
Quarter ended June 30, 2000                         $   24           $ 9-5/8
Period from July 1 to July 7, 2000                  $ 12-5/8         $11-5/8

Pink Sheets LLC
---------------

Period from September 11 to September 30, 2000      $ 6-3/64         $2-1/2
Quarter ended December 31, 2000                     $ 4-1/2          $ 3/4

2001
----

Period from January 1 to January 31, 2001           $ 4-9/16         $2-1/2
</TABLE>

Holders

As of January 31, 2001, there were approximately 189 holders of record and in
excess of 1,000 beneficial owners of the Company's common stock.

Dividends

The Company has never declared or paid a cash dividend on its common stock. The
Board of Directors presently intends to retain all earnings for use in the
Company's business and, therefore, does not anticipate paying cash dividends in
the foreseeable future. The declaration of cash dividends, if any, in the future
would be subject to the discretion of the Board of Directors, which may consider
such factors as the Company's results of operations, financial condition,
capital needs, and any contractual or other restrictions.



                                       12
<PAGE>   43


ITEM 6. SELECTED FINANCIAL DATA

The selected historical financial information presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" which follows and the Company's financial statements
and related notes thereto beginning on page F-1.

<TABLE>
<CAPTION>
                                                                       SIX MONTHS ENDED
                                                               ----------------------------------       YEAR ENDED
                                                                   JUNE 30,           JUNE 30,         DECEMBER 31,
                                                                     2000               1999               1999
                                                               ---------------    ---------------    ----------------
<S>                                                            <C>                <C>                <C>

STATEMENT OF OPERATIONS DATA (1):

Net sales                                                      $    17,157,541         10,773,177         24,212,249

Cost of goods sold                                                  10,310,940          5,581,693         12,811,300
                                                               ---------------    ---------------    ---------------

              Gross profit                                           6,846,601          5,191,484         11,400,949
                                                               ---------------    ---------------    ---------------

Operating expenses:
    Selling                                                          1,947,893          1,478,306          3,165,746
    General and administrative                                       2,440,097          1,654,915          3,650,742
    Research and development                                         3,002,753          2,209,015          4,852,518
    Expenses related to accounting restatements and the
       related shareholder litigation                                  469,347                 --                 --
                                                               ---------------    ---------------    ---------------

              Total expenses                                         7,860,090          5,342,236         11,669,006
                                                               ---------------    ---------------    ---------------

              Operating loss                                        (1,013,489)          (150,752)          (268,057)

    Other income (expenses):
    Interest income                                                    314,921            117,075            261,827
    Interest expense                                                  (453,059)          (459,695)          (878,524)
    Other, net                                                         (27,625)           (24,600)           (32,381)
                                                               ---------------    ---------------    ---------------

              Total other income (expenses)                           (165,763)          (367,220)          (649,078)
                                                               ---------------    ---------------    ---------------

              Net loss                                         $    (1,179,252)          (517,972)          (917,135)
                                                               ===============    ===============    ===============

Loss per share                                                 $         (0.17)             (0.09)             (0.16)
                                                               ===============    ===============    ===============

Weighted average shares outstanding                                  7,042,247          5,499,713          5,680,287
                                                               ===============    ===============    ===============

BALANCE SHEET DATA (AT PERIOD END) (1):

Cash and cash equivalents                                      $    11,030,293          3,338,430         14,721,048
Working capital (excluding bank debt)                               18,241,269          7,556,147         18,623,061
Working capital (deficit)                                            6,741,269         (3,620,038)         7,519,653

Total assets                                                        32,570,692         17,701,763         30,239,810

Notes payable and current installments of long-term
    obligations                                                     11,566,386         11,176,185         11,159,081
Long-term obligations                                                   91,666             69,539            101,791
Total stockholders' equity                                          14,684,577          3,237,520         14,373,058

</TABLE>

(1) Information prior to January 1, 1999 is not available. Information as of
June 30, 1999 and for the six months ended June 30, 1999, and as of the December
31, 1999 and for the year ended December 31, 1999 has been restated. See note 2
of the notes to the financial statements.


                                       13
<PAGE>   44


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

The following discussion and analysis should be read in conjunction with the
selected financial data in Item 6 and the financial statements of the Company
and the notes thereto beginning on page F-1. The Company's fiscal year end was
changed to June 30 effective in 2000. Previously, the Company's fiscal year
ended on December 31. The Company's operations consist of a single business
segment -- the design, manufacture and sale of a wide variety of radio frequency
and microwave components and devices mainly used in the wireless communications
industry.

In late 1999, the Securities and Exchange Commission commenced an investigation
into the Company's accounting and reporting practices in recent years.
Subsequently, the Company announced that its previously issued financial
statements should not be relied upon and that it would be amending its 1997 and
subsequent financial statements. It also announced that the Audit Committee of
the Board of Directors was conducting an investigation into the Company's
accounting policies and practices which may result in further adjustments to the
Company's financial statements. The preliminary results of the Company's
investigation were reported to the Audit Committee in September 2000, and on
September 12, 2000, the Company announced that it would restate its previously
issued financial statements, reducing stockholders' equity by $30 to $35
million. That estimate included write-downs of assets and changes in liabilities
identified in a preliminary report from an independent accounting firm engaged
by the Audit Committee. Thereafter, the Company began a process of restating its
previously issued financial statements. The adjustments to restate the Company's
previously issued financial statements are described in note 2 to the financial
statements.

Results of Operations for the Six Months Ended June 30, 2000 Compared with Six
Months Ended June 30, 1999

Net Sales

Net sales for the six months ended June 30, 2000 increased 59.3% to $17,157,541
compared with $10,773,177 for the six months ended June 30, 1999. This
improvement primarily reflects increased demand for commercial signal source
products. Revenue from commercial signal source products was $14,252,154 in the
six months ended June 30, 2000, a 74.0% increase from the $8,188,552 in the six
months ended June 30, 1999. Revenue from all other products was $2,905,387 in
the six months ended June 30, 2000, a 12.4% increase from the $2,584,625 in the
six months ended June 30, 1999.

Gross Profit

Gross profit for the six months ended June 30, 2000 increased 31.9% to
$6,846,601, or 39.9% of sales, compared with $5,191,484, or 48.2% of sales for
the six months ended June 30, 1999. Included in cost of goods sold for the six
months ended June 30, 2000 is a charge of $443,573 for obsolete and excess
inventory, which was not required for the six months ended June 30, 1999. The
lower gross profit margin in the 2000 period principally reflected a decrease in
average net selling prices of the Company's products, a higher ratio of material
costs to sales, due in part to the Company's decision to pay higher costs in
return for expedited delivery of raw materials, as well as the above noted
provision.

Operating Expenses

Included in operating expenses are charges for non-cash stock compensation. The
charges for stock compensation principally relate to amortization of deferred
stock compensation attributable to stock options granted at less than the market
price of the common stock on the date of the grant. Of the $492,609 total amount
of stock compensation recorded in the six months ended June 30, 2000, $462,449
relates to options granted in December 1999. In December 2000, these options
were re-priced at $34.50 per share, the market price of the common stock on the
date of the original grant. As a result, the remaining unamortized stock
compensation cost associated with these option grants was reversed in



                                       14
<PAGE>   45


December 2000. The following table summarizes stock compensation expense
included in each category of operating expenses:

<TABLE>
<CAPTION>
                                                          SIX MONTHS ENDED
                                                 ---------------------------------
                                                     JUNE 30,          JUNE 30,
                                                       2000              1999
                                                 ---------------   ---------------
<S>                                              <C>               <C>

Selling:
Non-cash stock compensation                      $        78,820             8,743
Other selling expenses                                 1,869,073         1,469,563
                                                 ---------------   ---------------

Total selling expenses                           $     1,947,893         1,478,306
                                                 ===============   ===============

General and administrative:
Non-cash stock compensation                      $       183,440            20,348
Other general and administrative expenses              2,256,657         1,634,567
                                                 ---------------   ---------------

Total general and administrative expenses        $     2,440,097         1,654,915
                                                 ===============   ===============

Research and development:
Non-cash stock compensation                      $       230,349            25,551
Other research and development expenses                2,772,404         2,183,464
                                                 ---------------   ---------------

Total research and development expenses          $     3,002,753         2,209,015
                                                 ===============   ===============
</TABLE>

Selling Expenses

Selling expenses for the six months ended June 30, 2000 increased 31.8% to
$1,947,893 or 11.4% of net sales, compared with $1,478,306 or 13.7% of net sales
for the six months ended June 30, 1999. Excluding non-cash stock compensation,
selling expenses for the six months ended June 30, 2000 increased 27.2% to
$1,869,073 or 10.9% of net sales compared with $1,469,563 or 13.6% of net sales
for the six months ended June 30, 1999. The increase in selling expenses was
primarily attributable to higher commissions paid to manufacturers'
representatives, increased travel in support of increased sales, as well as an
increase in stock compensation expense.

General and Administrative Expenses

General and administrative expenses for the six months ended June 30, 2000
increased 47.4% to $2,440,097 or 14.2% of net sales, compared with $1,654,915 or
15.4% of net sales for the six months ended June 30, 1999. Excluding non-cash
stock compensation, general and administrative expenses for the six months ended
June, 30, 2000 increased 38.1% to $2,256,657 or 13.2% of net sales compared with
$1,634,567 or 15.2% of net sales for the six months ended June 30, 1999. The
increase was primarily attributable to higher salaries, bonuses and employee
benefits paid to employees and higher expenses for investor relations, increased
depreciation expense for additional equipment placed in service, as well as an
increase in stock compensation expense.

Research and Development Expenses

Research and development expenses for the six months ended June 30, 2000
increased 35.9% to $3,002,753, or 17.5% of net sales, compared with $2,209,015
or 20.5% of net sales for the six months ended June 30, 1999. Excluding non-cash
compensation, research and development expenses for the six months ended June
30, 2000 increased 27.0% to $2,772,404, or 16.2% of net sales, compared with
$2,183,464 or 20.3% of net sales for the six months ended June 30, 1999. The
increase was primarily


                                       15
<PAGE>   46


attributable to higher salaries and benefits for current employees and for new
employees, bonuses paid to employees, an increase in materials utilized on
research and development projects, higher expenses for repair, maintenance and
calibration of engineering equipment, higher travel expense for engineering
management, as well as an increase in stock compensation expense.

Expenses Relating to Accounting Restatements and the Related Shareholder
Litigation

Expenses relating to the accounting restatements and the related shareholder
litigation for the six months ended June 30, 2000, were $469,347. These expenses
include the cost of external counsel for services provided in connection with
shareholder lawsuits and the Securities and Exchange Commission investigation of
the Company, the cost of certain consultants and temporary labor hired to assist
in the accounting restatements, and reimbursements to current and former
employees of the Company for their legal fees and expenses.

Total Other Income (Expense)

Interest income increased 169.0% to $314,921 for the six months period ended
June 30, 2000 compared with $117,075 for the six months ended June 30, 1999. The
increase was attributable to higher interest earnings on substantially larger
cash balances available for investing. Interest expense and other, net,
decreased slightly to $480,684 for the six months ended June 30, 2000 compared
with $484,295 for the six months ended June 30, 1999.

Net Loss and Loss Per Share

The net loss for the six months ended June 30, 2000 was $1,179,252, or $0.17 per
share, compared with a loss of $517,972, or $0.09 per share, in the comparable
period in 1999. Excluding the impact of stock compensation (which is a non-cash
charge to earnings) and expenses relating to accounting restatements and related
shareholder litigation (which management believes is nonrecurring), net loss for
the six months ended June 30, 2000 would have been $217,296, or $0.03 per share,
compared with a loss of $463,330, or $0.08 per share, in the 1999 period.

Results of Operations for the Year Ended December 31, 1999

Net sales for the year ended December 31, 1999 were $24,212,249. Gross profit
for the year ended December 31, 1999 was $11,400,949 or 47.1% of net sales.
Selling, general and administrative, and research and development expenses for
the year ended December 31, 1999 were $3,165,746, $3,650,742 and $4,852,518
respectively. As a percentage of net sales, selling, general and administrative,
and research and development expenses were 13.1%, 15.1% and 20.0% respectively.
Total other income (expense), consisting principally of interest expense, net of
interest income, was $649,078 for the year ended December 31, 1999. The net loss
and loss per share for the year ended December 31, 1999 was $917,135 and $0.16,
respectively.

Liquidity and Capital Resources

The Company's working capital at June 30, 2000, was $18,241,269, excluding notes
payable under the Company's credit facility with its current lender of
$11,500,000. Including the notes payable, working capital at June 30, 2000 was
$6,741,269. Working capital at June 30, 2000 includes cash of $11,030,293.
Working capital at December 31, 1999, excluding notes payable under the
Company's credit facility with its previous lender of $11,103,408, was
$18,623,061. Including the notes payable, working capital at December 31, 1999
was $7,519,653. Working capital at December 31, 1999, includes cash of
$14,721,048.

Cash used in operating activities was $3,578,362 for the six months ended June
30, 2000. Cash provided by the net loss, adjusted for non-cash charges, was
$62,112. This cash provided was offset by cash used for increased inventory
levels and accounts receivable in support of higher sales volume, and a
reduction


                                       16
<PAGE>   47


in accrued bonuses, partially offset by an increase in accounts payable to
vendors. Cash used in operating activities was $1,114,687 for the year ended
December 31, 1999. Cash provided by the net loss, adjusted by non-cash charges,
was $675,286. This cash provided was offset by cash used for increased inventory
levels and accounts receivable in support of higher sales volumes and a decrease
in accounts payable, partially offset by an increase in accrued bonuses.

Cash used in investing activities was $1,784,041 for the six months ended June
30, 2000 and was used principally for capital expenditures. Capital expenditures
for the six months ended June 30, 2000 related primarily to additional
production and test equipment to increase manufacturing capacity. Cash used in
investing activities for the year ended December 31, 1999 were $1,994,918 and
were for capital expenditures. The capital expenditures for the year ended
December 31, 1999 primarily related to additional production and test equipment
to increase manufacturing capacity and leasehold improvements to expand the
Company's manufacturing and engineering space.

Cash flows provided by financing activities were $1,671,648 for the six months
ended June 30, 2000, including proceeds from stock options exercised of $931,500
and net additional borrowings of $369,145. Cash flows provided by financing
activities for the year ended December 31, 1999 were $11,315,591. Proceeds from
the exercise of warrants and options of $11,644,545, were partially offset by
net repayments of borrowings of $321,969.

Revolving Credit Facility

On March 24, 2000, the Company entered into a $20,000,000 Revolving Credit
Facility (the "Loan Agreement"). The Loan Agreement provided for interest based
on the prime rate or LIBOR plus a margin, and was originally due September 30,
2002. Interest was payable on the line of credit at an annual rate of 9.5% at
June 30, 2000. The Company pays an annual commitment fee of .15% of the average
unused portion of the line, payable quarterly.

Proceeds from the Loan Agreement were used to repay the amount outstanding under
the prior credit facilities, which included a line of credit, a term loan, and a
revolving equipment term loan. Interest on the loans ranged from 6.1% to 7.75%
at December 31, 1999. The loans were secured by receivables, inventory and
property and equipment. The loans are now classified as current at December 31,
1999 because the Company has determined that it was in default of certain
provisions of the various related loan agreements on that date.

As of June 30, 2000, the Company continued to be in default under certain
covenants of the Loan Agreement. Upon default by the Company, the lender may
call the loan at any time. On September 28, 2000, the Company entered into a
forbearance agreement with the lender that, among other matters, delayed the
lender's right to accelerate payment of the loan to December 15, 2000. On
December 15, 2000, the Company entered into a second forbearance agreement that
delayed the lender's right to accelerate payment of the loan to March 31, 2001.
Accordingly, the amounts outstanding as of June 30, 2000 have been classified as
current. The second forbearance agreement requires the Company to maintain a
borrowing base of at least $8,800,000, calculated using a formula based on
inventories, accounts receivable aged less than 90 days, and equipment. The
Company was required to reduce the amount outstanding under the loan to
$8,800,000 on December 15, 2000. The second forbearance agreement also increased
the interest rate to the prime rate plus 2% through March 31, 2001.

The Company is seeking a new lender to provide a long-term credit facility with
more favorable terms and additional capacity than is available under the
forbearance agreement. There can be no assurance, however, that the Company will
be successful in obtaining a new lender or, if it is not successful, in
negotiating additional forbearance agreements with its current lender. Even if
the Company is successful in obtaining a new lender or negotiating an additional
forbearance agreement with its current lender, there can be no assurance that
the terms of such an agreement would provide adequate financing for additional
equipment and working capital required to support the Company's current growth
plans.


                                       17
<PAGE>   48


Forward Looking Statements

Some of the statements contained in this report are forward-looking statements.
The accuracy of these statements cannot be guaranteed as they are subject to a
variety of risks, including but not limited to the overall market for wireless
communications products, the success of the specific products into which the
Company's products are integrated, governmental action relating to wireless
communications, licensing and regulation, the accuracy of the Company's internal
projections as to the demand for certain types of technological innovation,
competitive products and pricing, the success of new product development
efforts, the timely release for production and the delivery of products under
existing contracts, the outcome of pending and threatened litigation and
regulatory actions, the Company's ability to refinance its loan agreement or
obtain additional forbearance agreements, as well as other factors.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk, including the effects of adverse changes
in interest rates. The Company's exposure to changes in interest rates results
from borrowings with floating interest rates. At the present time, the Company
has no financial instruments in place to manage the impact of changes in
interest rates. As of June 30, 2000, the Company had notes payable outstanding
under a bank credit facility of $11,500,000 with an interest rate of 9.5%. The
Company's second forbearance agreement with its lender increased the interest
rate to the prime rate plus 2% through March 31, 2001. The notes are due March
31, 2001, under the current forbearance agreement with the bank.

ITEM 8. FINANCIAL STATEMENTS.

The financial statements begin on page F-1. Financial statements prior to
January 1, 1999 can not be prepared without unreasonable effort and expense.

The financial statements for periods prior to June 30, 2000 have not been
audited. The Company has been informed by its independent auditors that they
will not be able to express unqualified audit opinions for periods prior to June
30, 2000, based on their determination that the internal controls over inventory
accounting and management systems prior to June 30, 2000 were not sufficiently
reliable to enable them to audit the Company's inventory quantities, and that
they are unable to apply alternative auditing procedures to the Company's
inventory balances for periods prior to June 30, 2000.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

The Company hereby incorporates by reference the information contained in Item 4
of its prior Forms 8-K filed on July 12, 2000, July 20, 2000 and September 15,
2000, respectively.




                                       18
<PAGE>   49


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below are the names of all Directors, Executive Officers and
significant employees of the Company, their ages, all positions and offices held
by each such person, the period during which he or she has served as such, and
the principal occupations and employment of such persons during the last five
years:

G. Peter Pappas - President and Chief Executive Officer. Mr. Pappas, age 56, has
been the Company's Chief Executive Officer since August 2, 2000. The Company's
Board of Directors retained BBK Ltd. (BBK), a consulting firm at which Mr.
Pappas is a principal, to provide Mr. Pappas' services as the Company's Chief
Executive Officer. Mr. Pappas remains a Principal of BBK, where he has been
employed since December 1994. Prior to joining BBK, he worked at Aegis
Associates, Inc., a turnaround-consulting firm, where he was its President and
Founder. He was employed by Perceptron, Inc., a high technology computer systems
company, as its Chief Financial Officer from 1983 to 1989. Prior to that time
Mr. Pappas served as the President of Michigan Technology Leasing, as a senior
finance manager for MDSI/Schlumberger, a financial supervisor and analyst for
Ford Motor Company and as the President and co-owner of American Transportation
and Transit System, Inc. Mr. Pappas received a bachelors degree and an MBA from
the University of Detroit. He is a Certified Turnaround Professional, a member
of the American Bankruptcy Institute and a member of the Turnaround Management
Association.

William C. Andrews - Interim Chief Financial Officer. Mr. Andrews, age 48, was
engaged as the Company's Interim Chief Financial Officer through BBK Ltd. from
August 2, 2000 until a permanent Chief Financial Officer was hired by the
Company on January 22, 2001. Mr. Andrews has served as a senior consultant and
manager for BBK Ltd. since July of 1998. From October 1995 to April 1998, Mr.
Andrews was the Chief Financial Officer of the By-Products Recovery Group of
Philip Services Corporation, an environmental services company. From 1991 to
1995, Mr. Andrews served in financial and general management capacities at
Rollins Environmental. From 1978 to 1990, Mr. Andrews served in a number of
Investor Relations and financial roles at GATX Corporation, including as CFO of
two of its largest subsidiaries. Mr. Andrews began his career with Deloitte &
Touche, serving as a staff auditor. Mr. Andrews received his undergraduate
degree from Bradley University in Accounting and his MBA from Northwestern
University in Finance and Managerial Economics. Mr. Andrews passed the CPA exam
in the state of Illinois in 1974.

Sarah L. Booher - Director. Ms. Booher, age 58, was appointed as a Director on
January 18, 1994. She has been a managing partner of Good Earth Farm, a horse
breeding farm, since 1992. Ms. Booher was the Executive Director of the Park
Ridge Foundation, a nonprofit health care foundation located in Rochester, New
York, from February 15, 1988 until September 1, 1996. She remained as a
consultant to the Foundation until August 30, 1997. After September 1, 1996, she
became Vice President of PMA Associates of Genesee Valley, Inc., a nonprofit
strategic planning corporation in Livonia, New York, where she remains as a
consultant and Secretary/Treasurer. She has also been a fund raising consultant
for the Cordelia A. Greene Library in Castile, New York, and the Hope Hall
School of Rochester, New York since 1998. During 1996 and 1997, Ms. Booher
served as President of the Genesee Valley, New York Chapter of the National
Society of Fundraising Executives, a nonprofit organization, where she also
served on the Board of Directors from 1986 to 1997. She received a BA degree
from the University of Colorado in 1964. Ms. Booher is the sister of Joseph H.
Kiser, an Executive Officer of the Company.

David A. Lisowski - Director. Mr. Lisowski, age 48, was elected as a Director on
June 26, 1996. Mr. Lisowski is the President and a Director of The Denver
Wholesale Florist Company, a national wholesale florist, for which he has been
the General Manager and Chief Executive Officer since 1993. He was employed by
Central Bank of Denver, N.A., a commercial bank in Colorado, and various
affiliated banks from 1972 to 1992. His employment with Central Bank included
serving as Senior Vice


                                       19
<PAGE>   50


President of Commercial Lending in Southern Colorado as well as various other
positions. Mr. Lisowski attended Metropolitan State College where he received a
BS degree in Finance in 1988.

Anthony B. Petrelli - Director. Mr. Petrelli, age 48, was elected as a Director
on October 17, 1997. Mr. Petrelli has served as Senior Vice President of
Investment Banking Services at Neidiger, Tucker, Bruner, Inc., an investment
banking firm and registered broker-dealer in Denver, Colorado, since May of
1987. He also was formerly a Director of Guardian Acceptance Corp., a consumer
finance company in Denver, Colorado, for which he served as President from
September 1996 until December 1997. Mr. Petrelli received a BS degree in
Business in 1974 and an MBA in 1979 from the University of Colorado.

Jae H. Shim - Director. Mr. Shim, age 43, was elected as a Director on June 18,
1999. Mr. Shim is the President and Chief Executive Officer of Mobigence, Inc.,
located in San Jose, California, which he founded in June 1999. Mobigence
designs and develops products for "smart phones" - wireless devices which
combine the features of a PCS phone and a personal information manager,
including advanced technology such as voice and handwriting recognition. From
August 1992 until February 1999, Mr. Shim was the Senior Director of the
Wireless Technology Center at Samsung Electronics America, Samsung Information
Systems America, Inc. in San Jose, California, where he was responsible for
overall operations, product research and development groups as well as a
technical/product marketing group for digital analog cellular/PCS phone
products. After leaving Samsung Electronics America, Mr. Shim was involved in a
new product development project for the wireless telecommunications industry
until he formed Mobigence. Mr. Shim previously served as a member of the Senior
Engineering Staff of the Cellular Products Group at Motorola, Inc. in Arlington
Heights, Illinois, from March 1989 until August 1992. At Motorola, he
participated in advanced GSM digital cellular phone development. Mr. Shim
received a BSEE from the University of Illinois at Urbana-Champaign in 1984.

Joseph H. Kiser - Chief Scientific Officer and Secretary. Mr. Kiser, age 62,
currently serves as Chief Scientific Officer and Secretary of the Company. He
has been employed by the Company since 1954 in various capacities including
President, C.E.O. and Vice President of Engineering and served as a Director
from 1965 to 2000. Prior to September 2000, Mr. Kiser served as Chairman of the
Board. In 1992, Mr. Kiser stepped down from his position as President of the
Company in order to concentrate his efforts on engineering and new product
development. Mr. Kiser, whose father founded the Company in 1953, has been
largely responsible for many of the technological successes and innovations of
the Company for the past 41 years. Mr. Kiser earned a BSEE degree in Electrical
Engineering from Cooper Union in 1967. Mr. Kiser is the brother of Sarah L.
Booher, a Director of the Company.

Derek L. Bailey - Executive Vice President of Sales and Marketing. Mr. Bailey,
age 36, has been the Company's Executive Vice President of Sales and Marketing
since June 2000. He joined the Company in May 1994 as Eastern Regional Sales
Manager and was promoted to National Sales Manager in October 1994 and to Vice
President of Sales and Marketing in October 1995 and served as a Director from
June 1999 to September 2000. Mr. Bailey has been associated with the Company in
various sales capacities since April 1990. Prior to joining the Company, he
worked for CEtech Electronics Corporation in Annapolis Junction, Maryland, as a
RF/Microwave Sales Engineer from April 1990 to May 1994, selling the Company's
and other products. Before that, Mr. Bailey held the positions of Engineer, RF
Design Engineer and Project Engineer with Adams Russell - Microtel Division in
Hunt Valley, Maryland, where he was involved with the design and development of
covert intelligence surveillance receivers, since 1986. Mr. Bailey received his
BSEET degree from the Ohio Institute of Technology in October 1985 and completed
the AEA/Stanford Executive Institute for Management of High-Technology Companies
at Stanford.

Daniel J. Wilmot - Vice President of Advanced Technology. Daniel Wilmot, age 36,
has been the Vice President of Advanced Technology since June 2000. He joined
Vari-L in August 1992 and was appointed Vice President of Engineering in
November 1993. He also has served as Product Development PLL Design Engineer and
Director of Advanced Product/Development Engineer in 1993. During his tenure
with the Company Mr. Wilmot has received one patent. Previously, Mr. Wilmot was


                                       20
<PAGE>   51


a RF Staff Engineer with Rockwell International where he worked in the
management, design, development, cost management and containment for PLLs and
VCOs among other hybrid RF subsystems. Prior to working at Rockwell
International he worked at Interstate Electronics Corp. in Anaheim, California
as a Radio subsystem designer for GPS applications. Mr. Wilmot received his BSEE
from University of California at Santa Barbara in June 1986 and an MSEE from the
California State University at Fullerton in December 1991. Mr. Wilmot also
completed the AEA/Stanford Executive Institute for Management of High-Technology
Companies at Stanford University, California in August 1999.

Richard P. Dutkiewicz - Vice President of Finance and Chief Financial Officer.
Mr. Dutkiewicz, age 45, joined the Company on January 22, 2001 as the Company's
Vice President of Finance and Chief Financial Officer. From 1995 to 2001, Mr.
Dutkiewicz was Vice President - Finance, Chief Financial Officer, Secretary and
Treasurer of Coleman Natural Products, Inc., located in Denver, Colorado, a
leading supplier of branded natural beef in the United States. Mr. Dutkiewicz'
previous experience includes senior financial management positions at Tetrad
Corporation, MicroLithics Corporation and various divisions of United
Technologies Corporation. Mr. Dutkiewicz was an Audit Manager at KPMG LLP. Mr.
Dutkiewicz received his BBA degree from Loyola University of Chicago in 1977. He
is a member of the American Institute of Certified Public Accountants and
Financial Executives International. Mr. Dutkiewicz also serves on the Board of
Directors of CareerLab.com.

Matthew L. Pope - Vice President of Commercial Advanced Product Development. Mr.
Pope, age 35, was elected as Vice President of Commercial Engineering and
Operations in January 1998, and as Vice President of Commercial Advance Product
Development in October 1999. Mr. Pope joined the Company in March 1994, as
Director of Advanced Product Development. He has been involved in the
development of the Commercial VCO and PLL products, earning 2 patents during the
course of these efforts. Prior to joining the Company, Mr. Pope was a Staff
Engineer with TRW Inc., where he worked in Design, Development, and Management
for X-band receivers, downconverters, oscillators, monolithic microwave
receivers, fast hop synthesizers, and MMIC design. Mr. Pope earned a BSEE from
Rensselaer Polytechnic Institute in 1987 and an MSEE from the University of
Southern California in 1988.

Janice E. Hyland - Vice President of Quality Assurance. Ms. Hyland, age 54, was
elected as Vice President of Quality Assurance in January 1998. Ms. Hyland is
responsible for the Corporate Quality Departments. The Company has employed Ms.
Hyland since 1986 in various capacities including the Director of Quality,
Quality Manager, Program Manager, and Inside Sales Manager. Ms. Hyland has over
32 years experience in Space Level/Military programs as Quality Management,
Program Management, and Contract Administrator/Negotiator for Military
contracts. Ms. Hyland has attended courses in Quality Assurance, Quality
Engineering and Program Management at the University of Irvine in Irvine,
California. Ms. Hyland was certified as Facility Security Officer through the
Department of Defense on June 11, 1993. Ms. Hyland completed the AEA/Stanford
Executive Institute Management of High-Technology Companies at Stanford
University, Stanford, California, on August 22, 1997.

Russell M. Crouch - Vice President of Commercial Engineering. Mr. Crouch, age
40, was elected as Vice President of Commercial Engineering in January 2000. He
joined the Company in April 1998 as the Director of Engineering, Hybrid
Products, then was Director of Engineering, Commercial Signal Source prior to
his promotion. Prior to coming to the Company, Mr. Crouch was an Assistant
Department Manager with TRW, Inc., where he was responsible for new business
development. Mr. Crouch earned a BEE from Georgia Institute of Technology in
1983 and an MSEE from the University of Southern California in 1992.

Larry M. Romero - Vice President of Process Engineering. Mr. Romero, age 38, was
elected as Vice President of Process Engineering in January 2000. Mr. Romero
joined the Company in August 1995 as Senior Process Engineer for the Commercial
Signal Source Division. Mr. Romero has also held the following positions prior
to his promotion, General Operations Manager and Director of Process
Engineering. Mr. Romero earned his BS degree in Electrical Engineering
Technology from the


                                       21
<PAGE>   52


University of Southern Colorado in 1986. Mr. Romero completed the AEA/Stanford
Executive Institute for Management of High - Technology Companies at Stanford
University, California in August 1999.

The Company's Executive Officers are elected by the Board of Directors at the
first meeting after each annual meeting of Shareholders and hold office until
the next such meeting of Directors or their earlier resignation or removal.

There is no arrangement or understanding between any such Director or Executive
Officer and any other person or persons pursuant to which he or she was or is to
be selected as a Director or Executive Officer nor is there any family
relationship between or among any of the Company's Directors or Executive
Officers, except that Joseph H. Kiser and Sarah L. Booher are brother and
sister.





                                       22
<PAGE>   53


ITEM 11. EXECUTIVE COMPENSATION

                             EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

The following table summarizes the compensation for the six months ended June
30, 2000 and the years ended December 31, 1999 and 1998 of the Company's Chief
Executive Officer, the Executive Officers and one additional officer whose
salary and bonus exceeded $100,000:

<TABLE>
<CAPTION>
                                                                                      Long-Term Compensation
                                                                                  -------------------------------
                                               Annual Compensation                             Awards
                                    --------------------------------------------  -------------------------------
                                                                       Other                          Securities
                                                                       Annual       Restricted        Underlying
        Name and                                                       Compen-         Stock           Options/
   Principal Position      Year      Salary ($)       Bonus ($)       sation($)    Award(s) ($)        SARs (#)
                         --------   -------------    -----------    ------------  -------------     ------------
<S>                      <C>         <C>             <C>            <C>           <C>               <C>

Joseph H. Kiser            2000*       154,875        100,000         101,605(1)       -0-              -0-
Chief Scientific           1999        295,000         75,000         152,505(2)    37,501(17)         100,000
Officer and Secretary      1998        295,000         75,000         196,644(3)    75,394(18)         100,000

David G. Sherman           2000*       102,375        100,000         138,484(4)       $-0-                -0-
Former President           1999        195,000         75,000         150,214(5)    37,501(17)         100,000
and CEO                    1998        195,000         75,000         163,231(6)    75,394(18)         100,000

Derek L. Bailey            2000*        67,500         55,000         44,000(10)        -0-                -0-
Executive Vice             1999        125,000         74,239         12,694(11)        -0-             50,000
President of Sales and     1998        114,712         37,000         30,783(12)        -0-             86,450
Marketing

Daniel J. Wilmot           2000*        62,500         35,000         30,974(7)         -0-                -0-
Vice President of          1999        125,000         54,937         12,698(8)         -0-             22,500
Advanced Technology        1998        114,712         37,000         31,510(9)         -0-             47,700

Russell M. Crouch          2000*        62,500         39,113         12,084(13)        -0-                -0-
Vice President of          1999        103,500         29,692            195(14)        -0-             27,500
Commercial Engineering     1998         62,000         15,370(16)        100(15)        -0-             40,000
</TABLE>

* The data presented is for the six months ended June 30, 2000.

(1)  Includes tax reimbursement of $84,501, automobile benefit of $5,875,
     insurance of $10,115 and an IRA contribution of $2,000.

(2)  Includes tax reimbursement of $107,202, automobile benefit of $11,750,
     insurance of $17,421, accrued vacation earned but not taken of $11,342, tax
     preparation fees of $2,790 and an IRA contribution of $2,000.

(3)  Includes tax reimbursement of $131,856, automobile benefit of $11,750,
     insurance of $17,103, accrued vacation earned but not taken of $31,600, tax
     preparation fees of $2,335 and an IRA contribution of $2,000.

(4)  Includes tax reimbursement of $84,501, accrued vacation earned but not
     taken of $30,000 (at termination), automobile benefit of $2,938 insurance
     of $9,700, legal services of $9,345 and an IRA contribution of $2,000.

(5)  Includes tax reimbursement of $104,117, automobile benefit of $4,700,
     insurance of $17,897, accrued vacation earned but not taken of $21,500, and
     an IRA contribution of $2,000.

(6)  Includes tax reimbursement of $130,564, automobile benefit of $2,840,
     insurance of $9,376, a retroactive pay increase from June 1, 1997 paid in
     1998 of $18,361, and an IRA contribution of $2,000.

(7)  Includes tax reimbursement of $24,301, automobile benefit of $4,375,
     insurance of $298, and an IRA contribution of $2,000.


                                       23
<PAGE>   54


(8)  Includes tax reimbursement of $719, automobile benefit of $8,600,
     miscellaneous of $778, insurance of $601, an IRA contribution of $2,000.

(9)  Includes tax reimbursement of $19,096, automobile benefit of $7,850,
     insurance of $352, accrued vacation earned but not taken of $2,212 and an
     IRA contribution of $2,000.

(10) Includes tax reimbursement of $36,007, automobile benefit of $5,625,
     insurance of $368, an IRA contribution of $2,000.

(11) Includes an IRA contribution of $2,000; an automobile benefit of $9,266,
     insurance of $709 and a tax reimbursement of $719.

(12) Includes tax reimbursement of $20,473, automobile benefit of $7,850,
     insurance of $460, an IRA contribution of $2,000.

(13) Includes tax reimbursement of $4,834, automobile benefit of $5,055,
     insurance of $195, an IRA contribution of $2,000.

(14) Includes insurance of $195.

(15) Includes insurance of $100.

(16) Includes a combination sign-on bonus and relocation allowance of $15,370.

(17) Includes 6,250 shares valued at $37,501 earned in 1998, but not issued
     until 1999. See "Employment Agreements."

(18) Includes 6,250 shares valued at $75,394 earned and issued in 1998. Does not
     include 6,250 shares earned in 1997 and issued in 1998. See "Employment
     Agreements."

None of the named Executive Officers or the one additional officer received
perquisites or other personal benefits, the aggregate amount of which was the
lesser of either $50,000 or 10% of the total of annual salary and bonus reported
for such persons.

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

No stock options or Stock Appreciation Rights were granted to the Executive
Officers and other officers during the six months ended June 30, 2000.

             AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
                        FISCAL YEAR END OPTION/SAR VALUES

The following table sets forth information concerning each exercise of stock
options during the transitional period ended June 30, 2000 by each of the named
Executive Officers and the two additional named officers and the fiscal year end
value of unexercised options:

<TABLE>
<CAPTION>
                                                                    Number of
                                                              Securities Underlying
                                                                   Unexercised           Value of Unexercised
                        Shares Acquired                          Options/SARs at      In-the-Money Options/SARs
   Name                  on Exercise(#)   Value Realized($)     Fiscal Year-End(#)     at Fiscal Year-End($)(1)
   ----                 ---------------   -----------------   ---------------------   -------------------------
                                                                   Exercisable/               Exercisable/
                                                                  Unexercisable              Unexercisable
                                                              ---------------------   -------------------------
<S>                     <C>               <C>                 <C>                     <C>

J.H. Kiser                  100,000        $1,738,870            175,000/75,000           $450,875/$306,875

D.G. Sherman                    -0-               -0-            228,499/75,000           $682,139/$306,875

D.L. Bailey                     -0-               -0-            30,441/108,872           $ 95,479/$181,844

D.J. Wilmot                     -0-               -0-             91,828/54,122           $ 454,991/$97,535

R.M. Crouch                     -0-               -0-              5,000/42,500           $  21,675/$65,025
</TABLE>

---------

(1)  Based on the fair market value of the Common Stock on June 30, 2000 of
     $11.625, based on the closing price as quoted on the Nasdaq National
     Market.


                                       24
<PAGE>   55


 Directors' Compensation

The Company currently has an arrangement whereby each outside Director receives
$1,000 per day for attendance in person (including lengthy meetings held by
telephonic conference) at any meeting of the Board of Directors or a committee
thereof. Outside Directors are reimbursed for their expenses in attending
meetings of the Board of Directors and its committees.

Pursuant to the Company's Tandem Stock Option and Stock Appreciation Rights
Plan, outside Directors receive a grant of ten-year, fully vested options to
purchase 500 shares of Common Stock for attendance at each meeting of the Board
of Directors (including lengthy meetings held by telephonic conference), a
committee thereof or a meeting with management of the Company or other Directors
for Company business or affairs. The options are automatically granted on the
date of the meeting with an exercise price equal to the fair market value on
such date.

Also, the members of each of the Audit and Compensation Committees receive a
grant of 50 shares each of Common Stock per month under the Company's Stock
Grant Plan.

Employment Agreements with Executive Officers

In April of 1998, the Company executed a new employment agreement with Joseph H.
Kiser for an initial term of four years commencing June 1, 1997. On each June 1
beginning in 1998, the agreement provides that it is automatically extended for
an additional year unless the Company or Mr. Kiser gives notice of non-extension
more than sixty (60) days before May 31 of such year. Because no such notice was
given in 2000 for Mr. Kiser, his agreement currently expires in 2004. Pursuant
to the agreement, the minimum base salary for Mr. Kiser is $295,000. The
agreement also provides for quarterly and/or year-end bonuses payable in cash or
shares of the Company's stock which are to be set each year by the Company's
Compensation Committee on the basis of merit and the Company's financial success
and progress in the prior fiscal year. In addition, the agreement provided for a
bonus of 25,000 shares of the Company's stock, 50% of which, or 12,500 shares,
were issued upon execution of the agreement, 25% or 6,250 shares were issued on
March 12, 1999 and the remaining 25%, or 6,250 shares, did not vest. All
unvested stock options previously granted to Mr. Kiser will fully vest in the
event of a change of control or an involuntary termination.

The agreement further provides for severance pay, in the event of involuntary
termination of employment by the Company, equal to the greater of Mr. Kiser's
annual base salary multiplied by the remaining term of the agreement or 2.99
times Mr. Kiser's average annual compensation over the last five years. In the
case of a voluntary retirement from employment or mandatory retirement from
employment pursuant to a retirement plan to which Mr. Kiser was subject prior to
a change in control, he would be entitled to one-half of his annual base salary
as severance pay.

In the event of voluntary termination or retirement, the Company agrees to
engage Mr. Kiser as a consultant to the Company for a period of up to five
years, for which he will be paid a fee equal to 50% of his annual base salary on
the date of termination of employment. For each year or part thereof that Mr.
Kiser provides consulting services to the Company, he will receive a retirement
benefit equal to 25% of his annual base salary at the time of his voluntary
termination for a period of time equal to the period that he provides consulting
services.

Mr. Kiser has agreed that, for a period of one year after termination or
expiration of his employment agreement or the period covered by any consulting
arrangement, he will not, directly or indirectly, compete with the Company.



                                       25
<PAGE>   56


David G. Sherman, the Company's former President and Chief Executive Officer,
previously had an agreement that was substantially identical to Mr. Kiser's,
except that his minimum base salary was $195,000. Effective August 1, 2000, Mr.
Sherman entered into a Termination and Consulting Agreement with the Company. In
that agreement, Mr. Sherman waived all rights he had under his employment
agreement to post-termination compensation and benefits and the Company agreed
to engage Mr. Sherman as a consultant for the period August 1, 2000 through July
31, 2001. In that capacity, Mr. Sherman is entitled to compensation at the rate
of $195,000 per year and other standard employee benefits. The agreement
includes a non-compete and non-solicitation agreement for three years. Mr.
Sherman is not currently being paid this compensation by the Company. See
"Certain Relationships and Related Transactions."

Agreements With Other Executive Officers

In January 1997, the Company entered into employment agreements with Daniel J.
Wilmot and Derek L. Bailey for a term of three years. In January 1999, Mr.
Wilmot's agreement was amended to provide that it automatically extends for an
additional year on each succeeding December 31 unless the Company or Mr. Wilmot
gives notice of non-extension more than thirty days before that date. In October
2000, the Company entered into a new employment agreement with Mr. Bailey. That
agreement is effective for one year expiring October 2001 with automatic renewal
unless he is terminated under the terms of the agreement. In January 2001, the
Company entered into an employment agreement with Mr. Richard P. Dutkiewicz to
become the Company's Chief Financial Officer and Vice President of Finance. That
agreement is effective for two years expiring January 2003 with automatic
renewal unless terminated under the terms of the agreement.

The minimum base salaries under these agreements range from $125,000 to
$150,000. The agreements also provide for year-end bonuses as determined at the
beginning of each fiscal year of the Company by the Board of Directors on the
basis of merit and the Company's financial success and progress. The agreements
provide for severance pay based on the then annual base salary for periods
ranging from six months to one year in the event of involuntary termination or,
in the case Mr. Bailey, voluntary termination. These officers have agreed that,
for a period of one year after termination of employment, they will not,
directly or indirectly, compete with the Company.

Jon L. Clark, the Company's former Vice President of Finance and Chief Financial
Officer, previously had an employment agreement with the Company substantially
similar to the ones provided to the other officers. Mr. Clark retired on June
30, 2000.

In September 2000, the Company entered into Stay Bonus Agreements with certain
of the Company's officers, including Messrs. Bailey and Wilmot. These agreements
provide that these officers will be paid bonuses at the end of each quarter
through August 31, 2001 if they remain in the employ of the Company. Stay
Bonuses for Messrs. Bailey and Wilmot total approximately $9,000 per quarter.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the number and percentage of shares of the
Company's Common Stock owned beneficially, as of January 31, 2001, by any person
who is known to the Company to be the beneficial owner of 5% or more of such
Common Stock, and, in addition, by each Director of the Company, by each
Executive Officer of the Company, by a former Director and Executive Officer of
the Company, and by all Directors and Executive Officers of the Company as a
group. Information as to beneficial ownership is based upon statements furnished
to the Company by such persons. For purposes of this disclosure, the amount of
the Company's Common Stock beneficially owned is the aggregate number of shares
of the Common Stock outstanding on such date plus an amount equal to the
aggregate amount of Common Stock which could be issued upon the exercise of
stock options within 60 days of such date by each individual, irrespective of
exercise price.


                                       26
<PAGE>   57


<TABLE>
<CAPTION>
                                    Amount and Nature
                                      of Beneficial            Percent
Name of Beneficial Owner                Ownership             of Class
------------------------            -----------------         --------
<S>                                 <C>                       <C>

G. Peter Pappas                                -0-              -0-%
4895 Peoria Street
Denver, Colorado 80239

Richard P. Dutkiewicz                          -0-              -0-%
4895 Peoria Street
Denver, Colorado 80239

William C. Andrews                             -0-              -0-%
4895 Peoria Street
Denver, Colorado 80239

Joseph H. Kiser(1)                         614,543               8.4%
4895 Peoria Street
Denver, Colorado 80239

Derek L. Bailey(2)                          65,732               <1%
4895 Peoria Street
Denver, Colorado 80239

Daniel J. Wilmot(3)                        111,869               1.6%
4895 Peoria Street
Denver, Colorado 80239

Sarah L. Booher(4)                          70,833                 1%
4492 South Livonia Road
Livonia, New York 14487

David A. Lisowski(5)                        31,250               <1%
4800 Dahlia
Denver, Colorado 80216

Anthony B. Petrelli(6)                      25,550               <1%
1675 Larimer St., #300
Denver, Colorado 80202

Jae H. Shim                                    -0-               -0-
5944 Killarney Circle
San Jose, California 95138

David G. Sherman(7)                        256,160               3.5%
6720 E. 6th Avenue
Denver, Colorado 80220

All Directors and Executive                919,777              12.1%
Officers as a Group(8)
(10 Persons)
</TABLE>

(1)  Includes 197,863 shares beneficially owned by Mr. Kiser as the result of
     certain trust arrangements. Also includes options to purchase 225,000
     shares.

(2)  Consists of options to purchase 65,732 shares.

(3)  Consists of options to purchase 111,869 shares.

(4)  Includes 11,920 shares held by Ms. Booher pursuant to trust arrangements.
     Also includes options to purchase 39,500 shares. Does not include an
     additional 3,230 shares held by her husband, Robert Booher, for which
     shares she has disclaimed beneficial ownership.

(5)  Includes options to purchase 28,500 shares.


                                       27
<PAGE>   58


(6)  Includes options to purchase 24,000 shares.

(7)  Includes 100,813 shares beneficially owned by Mr. Sherman as the result of
     certain trust agreements. Also includes options to purchase 155,347 shares.

(8)  Excludes Mr. Sherman beneficial ownership since he was neither director nor
     executive officer at January 31, 2001.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company leases certain corporate office and manufacturing facilities under
long-term operating leases from the Company's Chief Scientific Officer and
former chairman and from a partnership in which he is a partner. The leases
expire in 2002 to 2005 and contain provisions to extend the terms of the leases.
Total rent expense associated with these leases for the six months ended June
30, 2000 was $145,878 and for the year ended December 31, 1999, was $289,800.
The Company believes that these amounts paid to Mr. Kiser and the partnership
are no greater than would be paid in an arms-length transaction and that the
terms of the leases are substantially similar to leases of similar term on
commercial properties in the same area.

Under the Company's Articles of Incorporation, Bylaws and applicable Colorado
corporate law, the Company has certain obligations to indemnify its officers and
directors for expenses they incur in connection with the defense of litigation
brought against them on account of actions taken by them in those capacities. In
accordance with those obligations, the Company and certain of its current and
former officers (the "Officers") have entered into agreements (the
"Undertakings") relating to the advancement of legal fees and other expenses
incurred in connection with the SEC Investigation and the ongoing shareholder
litigation (the "Claims"). Pursuant to the Undertakings, the Officers have
agreed to repay any amounts advanced by the Company in connection with the
Claims, in the event (a) a determination is made by a committee of the Board of
Directors, composed entirely of outside directors, that the Officer engaged in
conduct which disqualifies the Officer from indemnification by the Company under
applicable law or (b) an express finding is made by a court of law or tribunal
with jurisdiction that the Officer is not entitled to indemnification under
applicable law (either (a) or (b) is referred to hereinafter as an "Adverse
Determination").

In consideration of the Company's advancement of legal fees and expenses,
including the payment of a retainer, the Officers agreed to fully cooperate with
the Company in connection with its own internal investigation of such matter and
in the defense of any Claims. In the Undertakings, the Officers affirmed that,
in the course of providing services to the Company, they had at all times
conducted themselves in good faith and that their conduct had always been in the
Company's best interests.

In the absence of an Adverse Determination, the Company has agreed in the
Undertakings to pay reasonable legal fees and expenses incurred by the Officers
in connection with the Claims. In the event of an Adverse Determination, no
further advances are to be made and the affected Officer would be required to
repay prior advances.

As of December 31, 2000, amounts invoiced to the Company for legal fees and
expenses, including retainers, totaled approximately $40,299 for Ms. Hume,
$106,923 for Mr. Sherman, $70,428 for Mr. Bailey, $91,296 for Mr. Kiser and
$93,745 for Mr. Clark.

During Mr. Sherman's tenure as President and Chief Executive Officer, he
traveled extensively on behalf of the Company, visiting suppliers and customers
and recruiting sales and other personnel. Mr. Sherman received cash advances
from the Company to pay for some of his expenses on these trips. The Company's
Audit Committee has determined that Mr. Sherman failed to adequately document
the business purpose for which he had utilized some of the amounts advanced. The
Audit Committee has asked Mr. Sherman to provide further information as to the
business purpose of his use of the cash advances and for documentation of that
use. In response, Mr. Sherman has provided additional information and
documentation to the Audit Committee. The Audit Committee is currently
reviewing,


                                       28
<PAGE>   59


with the assistance of an independent expert retained by counsel for the
Company, the material submitted by Mr. Sherman to determine what amount, if any,
he will be required to reimburse the Company on account of these advances. While
the Audit Committee's investigation is pending, the Company has suspended
payment of the consulting fees payable to Mr. Sherman pursuant to his
Termination and Consulting Agreement with the Company and has suspended further
advances to him for the legal fees and expenses he has incurred in connection
with the Claims.

Prior to her resignation as the Company's Controller in May 2000, Sarah Hume
made approximately $8,000 in unauthorized charges on a Company credit card for
travel expenses for members of her church. While she has signed a promissory
note to repay the Company, the Company has not received any payments on that
note to date and Ms. Hume has not fully cooperated with the Audit Committee's
internal investigation. Accordingly, the Audit Committee has suspended further
advances to her for the legal fees and expenses she has incurred in connection
with the Claims.

In August 2000, the Company entered into an agreement with BBK Ltd., a
management consulting firm headquartered in Southfield, Michigan. As a result of
this agreement, Mr. G. Peter Pappas, a principal of BBK, was appointed as the
Company's President and CEO while the Company's Board of Directors conducted a
search for a new permanent President and CEO. In addition, Mr. William C.
Andrews, also of BBK, was appointed as the Company's interim chief financial
officer. During the period from August through December 2000, the Company paid
$886,911 to BBK. Of that total, $318,925 was paid for the services of Mr. Pappas
and $278,600 was paid for the services of Mr. Andrews, and $289,386 was paid for
the services of other BBK personnel and related expenses. Messrs. Pappas and
Andrews may share in the benefit from any payments made to BBK through their
compensatory arrangements with BBK.

Pursuant to an agreement dated December 31, 1991, between the Company and
certain of its current and former officers, the Company guaranteed a series of
promissory notes payable by officers of the Company, including Messrs. Sherman
and Kiser, to a former officer in connection with her separation from the
Company. Two of those notes, as subsequently amended, remain outstanding. The
principal amount of Mr. Sherman's note is $82,236 and Mr. Kiser's is $86,877.
Both notes mature on March 1, 2003.

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

    Exhibit No.     Description
    -----------     -----------

       3.1a         Restated Articles of Incorporation, as Amended, filed as
                    Exhibit 4.1 to the Form S-8 Registration Statement (No.
                    33-88666) and incorporated herein by reference.

       3.1b         Articles of Amendment to the Articles of Incorporation filed
                    as Exhibit 3.1b to the Form 10-KSB for the year ended
                    December 31, 1996 and incorporated herein by reference.

        3.2         Restated Bylaws adopted on November 4, 1992 filed as Exhibit
                    3.2 to the Form SB-2 Registration Statement (No. 33-74704-D)
                    and incorporated herein by reference.

        4.1         Specimen Certificate for $.01 par value Common Stock filed
                    as Exhibit 4.3 to the Form SB-2 Registration Statement (No.
                    33-74704-D) and incorporated herein by reference.

        4.2         Rights Agreement with American Securities Transfer, Inc.
                    dated March 15, 1996 filed as Exhibit 4.2 to the Form 8-A/A
                    Registration Statement (No. 0-23866) and incorporated herein
                    by reference.



                                       29
<PAGE>   60


        4.3         Specimen Certificate for Right to Purchase $.01 par value
                    Common Stock filed as Exhibit 4.3 to the Form 8-A/A
                    Registration Statement (No. 0-23866) and incorporated herein
                    by reference.

        4.4         Securities Purchase Agreement with the Purchasers dated
                    March 4, 1997 filed as Exhibit 4.5 to the Form S-3
                    Registration Statement (No. 333-25173) and incorporated
                    herein by reference.

        4.5         Form of Convertible Subordinated Debenture issued to the
                    Purchasers under the Securities Purchase Agreement dated
                    March 4, 1997 filed as Exhibit 4.6 to the Form S-3
                    Registration Statement (No. 333-25173) and incorporated
                    herein by reference.

        4.6         Form of Warrant to Purchase Common Stock issued to the
                    Purchasers under the Securities Purchase Agreement dated
                    March 4, 1997 filed as Exhibit 4.7 to the Form S-3
                    Registration Statement (No. 333-25173) and incorporated
                    herein by reference.

       10.1         Executive Employment Agreement with Joseph H. Kiser, dated
                    effective June 1, 1997, filed as Exhibit 10.1 to the Form
                    10-QSB for the quarter ended September 30, 1998 and
                    incorporated herein by reference.

       10.2         Executive Employment Agreement with David G. Sherman, dated
                    effective June 1, 1997, filed as Exhibit 10.2 to the Form
                    10-QSB for the quarter ended September 30, 1998 and
                    incorporated herein by reference.

       10.3         Amended and Restated Tandem Stock Option and Stock
                    Appreciation Rights Plan, effective as of June 18, 1999,
                    filed as Exhibit 4 to the Registrant's Form S-8 Registration
                    Statement (No. 333-81915) and incorporated herein by
                    reference.

       10.4         Equipment Lease Agreement dated May 26, 1993 with Rossi
                    Hardesty Financial Inc. filed as Exhibit 10.14 to the Form
                    SB-2 Registration Statement (No. 33-74704-D) and
                    incorporated herein by reference.

       10.5         Lease Agreement dated January 1, 1987 with J.C. Enterprises
                    for the facility located at 5165 Peoria Street, Denver,
                    Colorado, as amended on December 6, 1990 and March 23, 1993,
                    filed as Exhibit 10.15 to the Form SB-2 Registration
                    Statement (No. 33-74704-D) and incorporated herein by
                    reference.

       10.6         Amended Lease Agreement dated July 1, 1992 with Bello-1
                    Partnership for the facility located at 11101 East 51st
                    Avenue, Denver Colorado, filed as Exhibit 10.16 to the Form
                    SB-2 Registration Statement (No. 33-74704-D) and
                    incorporated herein by reference.

       10.7         Settlement Agreement with Joseph H. Kiser, David G. Sherman,
                    Alwin E. Branson and Carolyn Y. Kiser dated January 31,
                    1992, as amended March 23, 1993, filed as Exhibit 10.18 to
                    the Form SB-2 Registration Statement (No. 33-74704-D) and
                    incorporated herein by reference.

       10.8         Profit Sharing Plan and Trust Agreement, as amended and
                    restated effective April 19, 1994 filed as Exhibit 10.16 to
                    the Form 10-KSB for the year ended December 31, 1994 and
                    incorporated herein by reference.

                                       30
<PAGE>   61



       10.9         Assignment of Amended Lease Agreement dated July 1, 1992
                    with Bello-1 Partnership from Bello-1 Partnership to Kenneth
                    L. Bettenhausen and Jean M. Bettenhausen dated May 26, 1994
                    for the facility located at 11101 East 51st Avenue, Denver,
                    Colorado filed as Exhibit 10.18 to the Form 10-KSB for the
                    year ended December 31, 1994 and incorporated herein by
                    reference.

       10.10        Stock Grant Plan effective as of June 19, 1998 filed as
                    Exhibit 10.8 to the Form 10-QSB for the quarter ended
                    September 30, 1998 and incorporated herein by reference.

       10.11        Lease Agreement dated July 14, 1995 with Joseph H. and Nora
                    L. Kiser, as amended September 1, 1995, for the facility
                    located at 15556 East 17th Avenue, Denver, Colorado filed as
                    Exhibit 10.21 to the Form 10-KSB for the year ended December
                    31, 1995 and incorporated herein by reference.

       10.12        Lease Agreement dated March 12, 1997 with Five K Investments
                    for the facility located at 4895 Peoria Street, Denver,
                    Colorado filed as Exhibit 10 to the Form 10-QSB for the
                    quarter ended September 30, 1997 and incorporated herein by
                    reference.

       10.13        Second Amendment to Lease Agreement dated July 14, 1995 with
                    Joseph H. Kiser and Nora L. Kiser for the facility located
                    at 15556 East 17th Avenue, Denver, Colorado, as amended
                    September 31, 1995 and July 31, 1998 filed as Exhibit 10.5
                    to the Form 10-QSB for the quarter ended September 30, 1998
                    and incorporated herein by reference.

       10.14        Third Amendment to Lease Agreement dated January 1, 1987
                    with J.C. Enterprises for the facility located at 5165
                    Peoria Street, Denver, Colorado, as amended December 6,
                    1990, March 23, 1993, and October 30, 1998 filed as Exhibit
                    10.6 to the Form 10-QSB for the quarter ended September 30,
                    1998 and incorporated herein by reference.

       10.15        Employment Agreement with Daniel J. Wilmot dated January 1,
                    1998 filed as Exhibit 10.9 to the Form 10-QSB for the
                    quarter ended September 30, 1998 and incorporated herein by
                    reference.

       10.16        Employment Agreement with Derek L. Bailey dated January 1,
                    1998 filed as Exhibit 10.10 to the Form 10-QSB for the
                    quarter ended September 30, 1998 and incorporated herein by
                    reference.

       10.17        Employment Agreement with Jon L. Clark dated January 1, 1998
                    filed as Exhibit 10.11 to the Registrant's Form 10-QSB for
                    the quarter ended September 30, 1998 and incorporated herein
                    by reference.

       10.18        Employee Stock Purchase Plan effective as of December 31,
                    1998 filed as Exhibit 10.28 to the Form 10-KSB for the year
                    ended December 31, 1998 and incorporated herein by
                    reference.

       10.19        Revolving Loan Agreement, Revolving Note and General
                    Security Agreement with Bank One, Colorado, N.A. dated March
                    24, 2000 filed as Exhibit 10 to the Form 10-Q for the
                    quarter ended March 30, 2000 and incorporated herein by
                    reference.


                                       31
<PAGE>   62


       10.20        Termination and Consulting Agreement with David G. Sherman
                    dated August 1, 2000 filed as Exhibit 10.1 to the Form 8-K
                    dated August 1, 2000 and incorporated herein by reference.

       10.21        Engagement Letter with BBK, Ltd. dated August 2, 2000 filed
                    as Exhibit 10.1 to the Form 8-K dated August 2, 2000 and
                    incorporated herein by reference.

       10.22        Deferral and Waiver Agreement with Bank One, Colorado N.A.
                    dated September 28, 2000 filed as Exhibit 10.1 to the Form
                    8-K dated September 29, 2000 and incorporated herein by
                    reference.

       10.23        Deferral and Waiver Agreement with Bank One, Colorado N.A.
                    dated December 15, 2000 filed as Exhibit 10.1 to the Form
                    8-K dated December 15, 2000 and incorporated herein by
                    reference.

       23           Consent of KPMG LLP

       27           Financial Data Schedule

Financial Statement Schedule

Schedule II, Valuation and Qualifying Accounts, Six months ended June 30, 2000
and year ended December 31, 1999 (Unaudited)

Reports on Form 8-K

A report on Form 8-K dated May 17, 2000 under Item 5 was filed with the
Commission on May 17, 2000. A report on Form 8-K dated July 5, 2000 under Item 4
was filed with the Commission on July 12, 2000. An amendment to the Form 8-K
dated July 5, 2000 on Form 8-K/A was filed with the Commission on July 20, 2000.
A report on Form 8-K dated August 1, 2000 under Item 5 was filed with the
Commission on August 11, 2000. A report on Form 8-K dated August 2, 2000 under
Item 5 was filed with the Commission on September 1, 2000. A report on Form 8-K
dated September 12, 2000 under Item 4 was filed with the Commission on September
15, 2000. A report on Form 8-K dated September 29, 2000 under Item 5 was filed
with the Commission on October 2, 2000. A report on Form 8-K dated December 15,
2000 under Item 5 was filed with the Commission on December 21, 2000. A report
on Form 8-K dated December 27, 2000 under Item 8 was filed with the Commission
on January 2, 2001. A report on Form 8-K dated January 10, 2001 under Items 5
and 9 was filed with the Commission on January 22, 2001. No financial statements
were filed under item 7 with any of the foregoing reports.



                                       32
<PAGE>   63


                                   SIGNATURES

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

                                     VARI-L COMPANY, INC.


                                     By: /s/ G. Peter Pappas
                                        --------------------------------------
                                        G. Peter Pappas,
                                        President and Chief Executive Officer

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


/s/ G. Peter Pappas                                    Date: February 14, 2001
----------------------------------------------
G. Peter Pappas, President and Chief Executive
Officer

/s/ William C. Andrews                                 Date: February 14, 2001
----------------------------------------------
William C. Andrews, Principal Accounting
Officer

/s/ Richard P. Dutkiewicz                              Date: February 14, 2001
----------------------------------------------
Richard P. Dutkiewicz, Vice President of
Finance and Chief Financial Officer,
Principal Financial Officer

/s/ Sarah L. Booher                                    Date: February 14, 2001
----------------------------------------------
Sarah L. Booher, Director

/s/ David A. Lisowski                                  Date: February 14, 2001
----------------------------------------------
David A. Lisowski, Director

/s/ Anthony B. Petrelli                                Date: February 14, 2001
----------------------------------------------
Anthony B. Petrelli, Director

/s/ Jae H. Shim                                        Date: February 14, 2001
----------------------------------------------
Jae H. Shim, Director



<PAGE>   64


                               INDEX TO EXHIBITS
                               -----------------


     Exhibit
     No.            Description
     -------        -----------

       3.1a         Restated Articles of Incorporation, as Amended, filed as
                    Exhibit 4.1 to the Form S-8 Registration Statement (No.
                    33-88666) and incorporated herein by reference.

       3.1b         Articles of Amendment to the Articles of Incorporation filed
                    as Exhibit 3.1b to the Form 10-KSB for the year ended
                    December 31, 1996 and incorporated herein by reference.

        3.2         Restated Bylaws adopted on November 4, 1992 filed as Exhibit
                    3.2 to the Form SB-2 Registration Statement (No. 33-74704-D)
                    and incorporated herein by reference.

        4.1         Specimen Certificate for $.01 par value Common Stock filed
                    as Exhibit 4.3 to the Form SB-2 Registration Statement (No.
                    33-74704-D) and incorporated herein by reference.

        4.2         Rights Agreement with American Securities Transfer, Inc.
                    dated March 15, 1996 filed as Exhibit 4.2 to the Form 8-A/A
                    Registration Statement (No. 0-23866) and incorporated herein
                    by reference.

<PAGE>   65

        4.3         Specimen Certificate for Right to Purchase $.01 par value
                    Common Stock filed as Exhibit 4.3 to the Form 8-A/A
                    Registration Statement (No. 0-23866) and incorporated herein
                    by reference.

        4.4         Securities Purchase Agreement with the Purchasers dated
                    March 4, 1997 filed as Exhibit 4.5 to the Form S-3
                    Registration Statement (No. 333-25173) and incorporated
                    herein by reference.

        4.5         Form of Convertible Subordinated Debenture issued to the
                    Purchasers under the Securities Purchase Agreement dated
                    March 4, 1997 filed as Exhibit 4.6 to the Form S-3
                    Registration Statement (No. 333-25173) and incorporated
                    herein by reference.

        4.6         Form of Warrant to Purchase Common Stock issued to the
                    Purchasers under the Securities Purchase Agreement dated
                    March 4, 1997 filed as Exhibit 4.7 to the Form S-3
                    Registration Statement (No. 333-25173) and incorporated
                    herein by reference.

       10.1         Executive Employment Agreement with Joseph H. Kiser, dated
                    effective June 1, 1997, filed as Exhibit 10.1 to the Form
                    10-QSB for the quarter ended September 30, 1998 and
                    incorporated herein by reference.

       10.2         Executive Employment Agreement with David G. Sherman, dated
                    effective June 1, 1997, filed as Exhibit 10.2 to the Form
                    10-QSB for the quarter ended September 30, 1998 and
                    incorporated herein by reference.

       10.3         Amended and Restated Tandem Stock Option and Stock
                    Appreciation Rights Plan, effective as of June 18, 1999,
                    filed as Exhibit 4 to the Registrant's Form S-8 Registration
                    Statement (No. 333-81915) and incorporated herein by
                    reference.

       10.4         Equipment Lease Agreement dated May 26, 1993 with Rossi
                    Hardesty Financial Inc. filed as Exhibit 10.14 to the Form
                    SB-2 Registration Statement (No. 33-74704-D) and
                    incorporated herein by reference.

       10.5         Lease Agreement dated January 1, 1987 with J.C. Enterprises
                    for the facility located at 5165 Peoria Street, Denver,
                    Colorado, as amended on December 6, 1990 and March 23, 1993,
                    filed as Exhibit 10.15 to the Form SB-2 Registration
                    Statement (No. 33-74704-D) and incorporated herein by
                    reference.

       10.6         Amended Lease Agreement dated July 1, 1992 with Bello-1
                    Partnership for the facility located at 11101 East 51st
                    Avenue, Denver Colorado, filed as Exhibit 10.16 to the Form
                    SB-2 Registration Statement (No. 33-74704-D) and
                    incorporated herein by reference.

       10.7         Settlement Agreement with Joseph H. Kiser, David G. Sherman,
                    Alwin E. Branson and Carolyn Y. Kiser dated January 31,
                    1992, as amended March 23, 1993, filed as Exhibit 10.18 to
                    the Form SB-2 Registration Statement (No. 33-74704-D) and
                    incorporated herein by reference.

       10.8         Profit Sharing Plan and Trust Agreement, as amended and
                    restated effective April 19, 1994 filed as Exhibit 10.16 to
                    the Form 10-KSB for the year ended December 31, 1994 and
                    incorporated herein by reference.


<PAGE>   66

       10.9         Assignment of Amended Lease Agreement dated July 1, 1992
                    with Bello-1 Partnership from Bello-1 Partnership to Kenneth
                    L. Bettenhausen and Jean M. Bettenhausen dated May 26, 1994
                    for the facility located at 11101 East 51st Avenue, Denver,
                    Colorado filed as Exhibit 10.18 to the Form 10-KSB for the
                    year ended December 31, 1994 and incorporated herein by
                    reference.

       10.10        Stock Grant Plan effective as of June 19, 1998 filed as
                    Exhibit 10.8 to the Form 10-QSB for the quarter ended
                    September 30, 1998 and incorporated herein by reference.

       10.11        Lease Agreement dated July 14, 1995 with Joseph H. and Nora
                    L. Kiser, as amended September 1, 1995, for the facility
                    located at 15556 East 17th Avenue, Denver, Colorado filed as
                    Exhibit 10.21 to the Form 10-KSB for the year ended December
                    31, 1995 and incorporated herein by reference.

       10.12        Lease Agreement dated March 12, 1997 with Five K Investments
                    for the facility located at 4895 Peoria Street, Denver,
                    Colorado filed as Exhibit 10 to the Form 10-QSB for the
                    quarter ended September 30, 1997 and incorporated herein by
                    reference.

       10.13        Second Amendment to Lease Agreement dated July 14, 1995 with
                    Joseph H. Kiser and Nora L. Kiser for the facility located
                    at 15556 East 17th Avenue, Denver, Colorado, as amended
                    September 31, 1995 and July 31, 1998 filed as Exhibit 10.5
                    to the Form 10-QSB for the quarter ended September 30, 1998
                    and incorporated herein by reference.

       10.14        Third Amendment to Lease Agreement dated January 1, 1987
                    with J.C. Enterprises for the facility located at 5165
                    Peoria Street, Denver, Colorado, as amended December 6,
                    1990, March 23, 1993, and October 30, 1998 filed as Exhibit
                    10.6 to the Form 10-QSB for the quarter ended September 30,
                    1998 and incorporated herein by reference.

       10.15        Employment Agreement with Daniel J. Wilmot dated January 1,
                    1998 filed as Exhibit 10.9 to the Form 10-QSB for the
                    quarter ended September 30, 1998 and incorporated herein by
                    reference.

       10.16        Employment Agreement with Derek L. Bailey dated January 1,
                    1998 filed as Exhibit 10.10 to the Form 10-QSB for the
                    quarter ended September 30, 1998 and incorporated herein by
                    reference.

       10.17        Employment Agreement with Jon L. Clark dated January 1, 1998
                    filed as Exhibit 10.11 to the Registrant's Form 10-QSB for
                    the quarter ended September 30, 1998 and incorporated herein
                    by reference.

       10.18        Employee Stock Purchase Plan effective as of December 31,
                    1998 filed as Exhibit 10.28 to the Form 10-KSB for the year
                    ended December 31, 1998 and incorporated herein by
                    reference.

       10.19        Revolving Loan Agreement, Revolving Note and General
                    Security Agreement with Bank One, Colorado, N.A. dated March
                    24, 2000 filed as Exhibit 10 to the Form 10-Q for the
                    quarter ended March 30, 2000 and incorporated herein by
                    reference.


<PAGE>   67


       10.20        Termination and Consulting Agreement with David G. Sherman
                    dated August 1, 2000 filed as Exhibit 10.1 to the Form 8-K
                    dated August 1, 2000 and incorporated herein by reference.

       10.21        Engagement Letter with BBK, Ltd. dated August 2, 2000 filed
                    as Exhibit 10.1 to the Form 8-K dated August 2, 2000 and
                    incorporated herein by reference.

       10.22        Deferral and Waiver Agreement with Bank One, Colorado N.A.
                    dated September 28, 2000 filed as Exhibit 10.1 to the Form
                    8-K dated September 29, 2000 and incorporated herein by
                    reference.

       10.23        Deferral and Waiver Agreement with Bank One, Colorado N.A.
                    dated December 15, 2000 filed as Exhibit 10.1 to the Form
                    8-K dated December 15, 2000 and incorporated herein by
                    reference.

       23           Consent of KPMG LLP

       27           Financial Data Schedule