U.S. SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549
                                     
                                FORM 10-KSB

[X]  ANNUAL  REPORT  UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
     ACT OF 1934

                For the fiscal year ended December 31, 1997

Commission File No. 0-23866
                           VARI-L COMPANY, INC.
              (Name of Small Business Issuer in its Charter)

         Colorado                               06-0679347
(State or other jurisdiction       (I.R.S. Employer Identification No.)
of incorporation)

                            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.

     [X]  Yes     [ ]  No

     Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B 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-KSB or any amendment to this Form 10-KSB.          [  ]

     State issuer's revenues for the fiscal year ended December 31, 1997:
$17,385,364.

     The aggregate market value of the Common Stock held by non-affiliates
on March 9, 1998 was approximately $45,846,588 based on the closing price
on the Nasdaq National Market System on that date.

                    DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the issuer's definitive proxy statement to be filed
pursuant to Regulation 14A not later than 120 days after the end of the
fiscal year are incorporated by reference in Part III.

                                  PART I
                                     
ITEM 1.  BUSINESS

INTRODUCTION

     Vari-L Company, Inc. (the "Company") designs, manufactures and
markets a wide range of signal processing components and devices which are
used in communications equipment and systems, such as cellular telephones
and base stations, local area computer networks, and satellite
communications equipment, as well as military and aerospace applications,
such as advanced radar systems, missile guidance systems, and navigational
systems.  The Company sells its products primarily to original equipment
manufacturers of communications systems.

     The Company was founded in 1953 in Stamford, Connecticut and
relocated to Denver, Colorado in 1969.  The Company's new 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's products are used in wireless communications equipment.
Wireless communication is the transmission of voice and 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 which is used in all wireless
communications. Radio Frequency ("RF") indicates lower frequencies while
"microwave" refers to relatively higher frequencies in the spectrum.

     Different types of wireless communications systems utilize different
frequencies in the spectrum.  Frequency is measured in cycles per second,
or Hertz.  The spectrum currently in use by the various types of wireless
communications equipment ranges from 1 kiloHertz  (1 thousand cycles per
second) to 20 gigaHertz (20 billion cycles per second).  In the United
States, the Federal Communications Commission allocates portions of the
spectrum for different types of wireless communication systems.  Wireless
communications systems currently in use include cellular telephones and
base stations, wireless cable (LMDS), satellite communications, global
positioning systems, local area networks, as well as radar systems,
missile guidance systems and navigational systems.  Communications systems
recently launched at the lower end of the spectrum include personal
communications systems, or PCS, and direct broadcast satellites.  The
Company's products are designed for use in all of these applications.

PRODUCTS

     The Company produces a wide range of products which are, in essence,
basic building blocks used in many wireless communications systems, and
they perform a wide variety of RF and microwave signal processing
functions.  The Company's products and technologies are also integrated
vertically by the Company into specialized assemblies which perform multi-
function microwave signal processing, as in the Company's phase locked
loop synthesizer, described below.  The Company produces both standard
catalog and custom-designed products.

SIGNAL SOURCE COMPONENTS

     One of the Company's major product lines is based on its patented
design of the voltage controlled oscillator ("VCO").  Oscillators are
components which provide a precise signal source within a frequency range.
They are widely used in transmitting and receiving equipment.  The
Company's patented technology enables its VCOs to operate with
approximately 20% of the input power requirements of most of its
competitors.  This unique feature, combined with the VCO's high quality
performance, allows the Company's VCOs to be utilized in battery operated
and other low-power applications, such as cellular telephones, with better
performance than competing products.

     The Company produces several types of VCOs.  The Company's wide-band
VCOs are sophisticated, high reliability components which are manufactured
in a clean-room environment and are hermetically-sealed.  They are sold
for use in both military and high-end commercial applications.  One of the
Company's Commercial Signal Source Component products, the low-cost VCO,
was introduced in May 1994.  This surface mount product was the first of
an entire product line of very narrow-band VCOs priced at approximately
75% less than the Company's wide-band VCOs.  These products are designed
to perform at high levels of efficiency while being priced competitively
for higher volume commercial applications.  Most of the increase in the
Company's sales over the past two years is attributable to the low-cost
VCO. In June 1997, the Company's patent for a 1.2 volt VCO, which has the
lowest energy consumption available at .0035 watts, was approved.  Low
energy consumption is vital for battery powered applications such as hand-
held telephones and pagers.  The new patent enhances the Company's
position in the subscriber hand-held telephone and pager marketplace. In
1997, the Company also made significant investments in automatic
manufacturing and test equipment to manufacture higher volumes of its low
cost VCOs than had been possible in prior years.  In addition, as part of
its new headquarters facility, the Company now has the capability of
adding to this already increased manufacturing capacity by further
acquisitions of such automated equipment.

     Besides direct sales to original equipment manufacturers and
component suppliers to such manufacturers, the Company's low-cost VCOs are
also utilized by the Company as components in its phase locked loop
synthesizers, discussed below.

PHASE LOCKED LOOP SYNTHESIZERS

     The Company introduced its first Commercial Signal Source Component
product, the phase locked loop synthesizer ("PLL"), in 1993.  The PLL is a
device made up of a VCO, a loop filter,  and integrated circuits.  PLLs
are utilized in both transmitting and receiving equipment.  The PLL's
function is to lock onto stable reference signals and convert them into
stable frequencies which may be detected and utilized by the
communications equipment.  This function is essential in communications
equipment.

     As compared to its competitors, the Company's PLL exhibits superior
phase noise performance and uses approximately 20% of the power, operates
with an extended life, and is competitively priced. The Company's low-cost
PLL was recognized as one of the twelve best new products introduced in
1993 by MICROWAVES & RF MAGAZINE.  The Company's PLL-300/400 series and
low-cost VCOs are designed for use in applications such as cellular
telephones and cellular telephone base stations, personal communications
networks, personal communication systems, local area computer networks,
satellite communications, global positioning systems, and direct broadcast
systems.

SIGNAL PROCESSING COMPONENTS

     The Company also produces a line of RF and microwave signal
processing components which are primarily used in military and space
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 and phase detectors which are used to convert the frequency of RF
and microwave signals into usable information and data.

     Military and space applications of these products, as well as the
Company's wide-band VCOs, described above, include the radar systems of
military aircraft, the guidance systems of anti-aircraft and anti-missile
missiles, and military and commercial satellites.  The military programs
using these products include the Patriot missile, AMRAAM missile, Harm
missile, PRC104 Man-Pac radio, F14, F15 and F18 fire control systems,
Phoenix missile, F16 radar systems (tail warning) and the Standard Missile
II.  These components, together with the wide-band VCOs, formed the
original product lines of the Company and continue to be the Company's
most technically advanced products, often utilizing technologies developed
by the Company.  They are typically very high reliability, high
performance, custom designed components.  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.  In this
area, because the components are manufactured to its customers'
specifications, the Company is often a sole source supplier.

FIBER-OPTIC COMPONENTS

     Through its Signal Processing Components engineering group, the
Company recently developed patented technology for a high-impedance ratio,
wide-band transformer circuit used in the conversion of light wave signals
to and from radio frequency signals.  This patent was approved in April
1997 by the U.S. Patent and Trademark Office.  Demand for the "fiber-
optic" transformer circuit is expected to come from a variety of
applications, including cable access television ("CATV").


MANUFACTURING

     The Company's Commercial Signal Source Components products are
manufactured with automated, "pick and place" assembly equipment.  Until
1997, these products were manufactured by third-party contract
manufacturers in the United States.  In 1997, the Company brought this
process in-house with the acquisition of two automated assembly lines.  In
addition, a third automated assembly line is under contract, as well as
equipment to automate other steps in the production and testing processes.
This third assembly line will be dedicated to high volume subscriber
products and will exhibit advanced automation and increased capacity.

     The length of the production process for products manufactured
through the Company's automated assembly lines is two to three weeks.
Manufacturing of the Company's other products, which involves less
automated assembly, takes from one to fifty-two weeks.  The Company may
maintain inventory of the raw materials required for production of its
products for a period of up to one year or more.


     At the present time, all of the Company's products are manufactured
at the Company's various facilities in Denver, Colorado.  The Company has
in the past manufactured some of its products outside of the United States
and may do so again in the future.  In 1996, the Company entered into an
agreement to produce commercial VCOs and PLLs at a facility in Beijing in
the Peoples Republic of China.  Under the joint venture agreement, the
Company would own 51% of the Chinese manufacturing company, which is
expected to supply products to the Chinese market as well as to other
Pacific Rim markets and elsewhere.  Although the Company planned to begin
manufacturing there in the summer of 1997, the commencement of production
in China has been deferred until the Company receives satisfactory
assurances of patent and trade secret protection.

SUPPLIERS

     The Company currently has approximately 150 suppliers and
historically has not experienced any unusual supply problems.  In recent
years, however, as the Company's size and sales volume have increased and
various changes have occurred in the telecommunications parts industry,
the Company has noted an increase in the number of supplier and supply
quality problems.  Accordingly, the Company believes that obtaining a
secure and competitively priced supply of the components needed to meet
anticipated increases in sales is one of its most important challenges
over the next several years.

     Because the Company uses a significant amount of gold in its high
reliability product line, the Company's costs of production may be
affected by the sometimes volatile market price of gold.  Accordingly, in
December 1993, the Company made a $203,000 purchase of gold bullion as a
hedge against future increases in the price of gold.  This purchase, which
is roughly equivalent to the amount of gold used by the Company for
manufacturing in one year, is still held by the Company as of the date
hereof.  Recent declines in the price of gold have diminished the value of
this investment but the Company plans to continue to hold the bullion as a
hedge for the foreseeable future.

SALES AND MARKETING

     In the past, the Company's primary business was to engineer,
manufacture and market high performance, high reliability microwave signal
processing components used in military applications, such as missile
guidance systems, advanced navigational systems and advanced radar
systems.  In recent years, the Company shifted its focus to the commercial
marketplace to lessen the Company's susceptibility to trends in defense
spending and to seek a share of the dramatic growth anticipated for
commercial wireless communications.  As a result of this shift, the
Company believes that variances in its business will now be more dependent
on general business cycles, changes in market demand for the commercial
products built with the Company's components, and on technological
innovations.  In 1991, the approximate mix of customer orders was 25% for
commercial applications and 75% for military applications.  By 1993, this
mix was approximately 50% for commercial applications and 50% for military
applications.  In 1997, this mix was approximately 82% for commercial
applications and 18% for military applications.

     During 1997, the Company continued to derive a substantial portion of
bookings from its international marketing efforts.  The $9,980,000 in firm
orders from non-U.S. customers in 1997 represented 51% of total firm
orders for the year as it did in 1996, when the non-U.S. customers
accounted for $6,308,000 in sales.  The 51% of firm international orders
for 1997 represented 95% for commercial applications and 5% for military
applications.  The Company's 1997 international business included orders
from customers in Sweden, Germany, France, Japan, England, India, China,
South Korea and other countries.

     The following table lists the Company's sales revenues for each of
the past five years according to the Company's product lines:

<TABLE>
<CAPTION>
                                         Sales Revenues
                                          (In thousands)

                                 1997   1996   1995   1994   1993
                                 ----   ----   ----   ----   ----

<S>                           <C>      <C>      <C>      <C>  <C>
Signal Processing Components  $ 1,897  $ 1,738  $ 2,345$ 1,542$ 2,394
Fiber-Optic
  Signal Processing Components  1,392      -0-      -0-    -0-    -0-
Wide-Band VCOs                  4,957    3,825    3,829  4,363  4,032
Signal Processing Components
  Combined with Wide-Band VCOs    262    1,025      776    194    283
Commercial Signal
  Source Components             8,877    5,622    2,518  1,128    218
                                -----    -----     ----  -----  -----
                              $17,385  $12,210   $9,468 $7,227 $6,927

                              =======  =======   ====== ====== ======
</TABLE>

     The Company's sales are made primarily through independent sales
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
sales representatives also represent other manufacturers with products
complementary to, rather than competitive with, the Company's products.
The Company normally engages 15 to 20 sales representative firms in the
U.S. and also has 15 sales representatives covering 25 foreign countries.
The Company now employs an East Coast Regional Sales Manager, a West Coast
Regional Sales Manager, a Director of Military/Aerospace Sales, a European
Regional Sales Manager, a Pacific Rim Regional Sales Manager and a Vice-
President of Sales, all of whom work together to manage and coordinate the
activities of the sales representatives.

     In addition to the efforts of its independent sales representatives,
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 trade
show product seminars and exhibitions.

CUSTOMERS

     The Company sells primarily to original equipment manufacturers of
communications equipment in either the commercial or military marketplace.
Many of those customers are larger Fortune 500 companies with world-wide
operations or prime contractors for military 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 Motorola, Nokia, Ericsson,
Lucent Technologies, Samsung, Uniden, Hughes Network Systems, and Siemens
in the commercial market, and Raytheon Systems Co., Hughes Space/Com.,
Lockheed Martin, L3 Communications, Rockwell, Northrup Grumann, NEC, Saab
Ericsson, and Matra Defense in the military and aerospace market.  In
1996, Ericsson accounted for 11% of the Company's total sales, followed by
Raytheon at 8%.  The Company's two largest customers in 1997 were Motorola
and Nokia, with each accounting for 12% of sales revenues.  The Company
does not believe that its business is dependent on any one of its
customers.

     The Company's customers have historically bought products from the
Company on the basis of purchase orders, rather than long-term supply
contracts.  Recently, the Company has entered into long term purchase
agreements with some of its larger commercial customers.  These agreements
establish preferred vendor status for the Company and, in certain cases,
set minimum amounts which will be purchased by the customer over the term
of the agreement.

COMPETITION

     The Company is subject to active competition in the sale of virtually
all of its products. Many of its 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.  While some large foreign
firms, principally Japanese, have the ability to manufacture competitive
products in much larger production runs than the Company, the Company
believes that its expanded capacity has materially increased its own mass
production capabilities.

     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 applications, including the 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 Merrimac and Remec are its largest competitors
in the Signal Processing Components market.  Murata, Fujitsu, ALPS and Z-
Comm compete in the lower-priced commercial VCO marketplace.  Remec/Magnum
competes with the Company primarily in the wide-band, hermetically-sealed
VCO marketplace.  PLL competitors include ALPS, Panasonic, Ma/Com and
Synergy.  While most of these competitors have significantly greater
financial and other resources than the Company, the Company believes that
it will continue to be able to successfully compete in these markets
because of the strength of its existing technology and its ongoing
commitment to technological innovation.

RESEARCH AND DEVELOPMENT

     The Company's products are marketed in a highly competitive and
rapidly changing technological environment.  Consequently, the Company has
historically invested heavily in its research and development programs.
For the years ended December 31, 1997 and 1996, the Company expended
approximately $1,026,000 and $695,000, respectively, on such programs.

     Joseph H. Kiser, Chief Scientific Officer, directs the research and
development efforts of the Company.  Mr. Kiser has been largely
responsible for many of the technological successes and innovations of the
Company over the past 38 years and is the author of the Company's VCO
patent.  He heads up a 35-member team of engineers and other technically
trained personnel who perform research and development in addition to
providing process and production assistance to other departments.

PATENTS

     The patent on the Company's 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 2006.  The Company also
owns three other U.S. patents for (i) a Frequency Translator, expiring
1998, (ii) Broadband High Frequency Baluns and Mixer, expiring 1998, and
(iii) Broadband Mixer with Coplanar Balun, expiring in 2002.  During 1997,
the Company received approval from the U.S. Patent and Trademark Office on
two new patents.  In April 1997, the Company's patent for a high impedance
ratio wide-band transformer circuit, used in the conversion of light wave
signals to and from radio frequency signals, was approved.  In early June,
the Company's patent for a 1.2 volt VCO, which has the lowest energy
consumption available at .0035 watts, was approved.  To the Company's
knowledge, there are no asserted claims by other parties to the Company's
products or patents.

     During  the third quarter of 1997, the Company also announced it had
developed a new 5.8 gigaHertz VCO to be used in a variety of applications
for the third ISM license-free frequency-band market, which includes
intelligent highway vehicle systems and other advanced technologies.  This
VCO has state-of-the art phase noise performance and the lowest energy
consumption of any product in its class.

     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 include the time and
expense to design and manufacture components and the difficulty of selling
to those customers who have already designed the Company's components into
their equipment.

     If the China joint venture goes forward, the Company will contribute
a license of its proprietary processes and its manufacturing, marketing
and business expertise. The Company is under no obligation to contribute
such a license or otherwise proceed until all necessary government
approvals, including satisfactory assurances of patent and trade secret
protection, have been obtained.

GOVERNMENT REGULATION

     In many instances, the Company has been required to obtain export
licenses before filling foreign orders.  United States Export
Administration regulations control high technology exports like the
Company's products for reasons of national security, compliance with U.S.
foreign policy, protection of domestic reserves of products in short
supply and, under certain circumstances, for the security of a destination
country.  Any foreign sales of the Company's products requiring export
licenses must comply with these general policies.  Although the Company
has not experienced significant export licensing problems, such problems
may arise in the future, particularly since so many of the Company's
products have actual or potential military and other governmental
applications.

EMPLOYEES

     As of December 31, 1997, the Company had 202 full-time employees and
two part-time employees, including 31 engaged in management and
administration, 35 in engineering, 128 in production and testing, and 10
in sales.  The Company believes that its employee relations are good.

ITEM 2.  DESCRIPTION OF PROPERTY

     The Company began leasing its new corporate headquarters ("Building
4") in Denver, Colorado during November of 1997.  Building 4 has
approximately 30,874 square feet and houses the Company's administration,
sales, personnel, quality assurance and finance.  It will also be the site
of some of the Company's new, highly automated pick and place assembly
lines for products aimed at the subscriber market.  The lease expires on
September 1, 2013, and provides for a monthly base rental of $41,204
through August 31, 2003 with possible increases each year thereafter.  The
Company is also obligated to pay taxes, insurance, maintenance and other
expenses on the facility for the term of the lease.  The lease may be
extended at the option of the Company for two additional terms of five
years each.

     The Company is in the process of remodeling its former headquarters
building, an approximately 20,200 square foot facility in Denver
("Building 1").  When the remodeling is completed, it will house all
aspects of the Company's Wide-Band VCO and Signal Processing Component
operations in a single facility.  The Building 1 lease, which expires on
June 30, 2002, provides for a monthly  base rental of $9,907 through June
30, 1998 with increases each year thereafter up to $10,920 per month
during the final year.  The Company is obligated to pay taxes, insurance,
maintenance and other expenses for the term of the lease.  After 2002, the
lease may be extended at the option of the Company for two additional
terms of two years each.

     The Company leases another facility in Denver of approximately 13,650
square feet ("Building 2") which currently houses all of the Company's
engineering, purchasing and production operations for its Commercial
Signal Source Component products. The Company's two pick and place
assembly lines for the commercial infrastructure market, including VCOs
used in cellular and PCS base stations, are in Building 2.  The lease
expires on October 24, 2000, and provides for a monthly base rental of
$6,634 through September 30, 1998, and $4,000 per month thereafter for the
remainder of the lease term.  The Company is responsible for payment of
taxes, insurance, maintenance and other expenses.  The facility is leased
from a partnership in which an executive officer of the Company, Joseph H.
Kiser, is a partner.

     The Company leases a fourth facility ("Building 3") in Denver which
houses the Company's machine shop and advanced products engineering.
Building 3 has approximately 8,836 square feet and the  lease expires
August 1, 1998.  The monthly base rental is $3,279 plus taxes, insurance,
maintenance and other expenses.  The facility is leased from Joseph H.
Kiser, an executive officer of the Company.

     As part of its severance arrangements with a former officer, the
Company rents residential properties in Colorado and Mexico from the
former officer.  The Company has not exercised its tenancy rights on those
properties and does not intend to do so in the future.  These leases
expire March 31, 1998 and June 30, 1998.

ITEM 3.  LEGAL PROCEEDINGS

     No material legal proceedings to which the Company is a party or to
which the property of the Company is subject are pending and no such
proceedings are known by the Company to be contemplated.

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

     There were no matters submitted to a vote of security holders of the
Company during the fiscal quarter ended December 31, 1997.



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

MARKET

     The Company's common stock is traded under the symbol "VARL" on the
Nasdaq National Market.  The following table sets forth the high and low
prices for the common stock for the periods indicated:

                                          High         Low
                                          ----         ----

1996
----

Fiscal quarter ended March 31, 1996     $17-1/2      $12-1/4
Fiscal quarter ended June 30, 1996      $15-3/4      $10-1/2
Fiscal quarter ended September 30, 1996 $12-1/4       $6-1/4
Fiscal quarter ended December 31, 1996  $10-7/8       $7-5/8

1997
----

Fiscal quarter ended March 31, 1997     $11-7/8         $8
Fiscal quarter ended June 30, 1997         $9         $6-3/4
Fiscal quarter ended September 30, 1997 $11-7/16      $6-7/8
Fiscal quarter ended December 31, 1997  $12-7/8      $7-5/16


HOLDERS

     As of December 31, 1997, there were approximately 143 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.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

OVERVIEW

     Sales of the Company's products increased approximately $5.2 million,
or 42%, from 1996 to 1997.  Manufacturing costs as a percent of sales
decreased approximately 5% from 1996 to 1997, due primarily to
improvements in production processing that have increased personnel
efficiencies and reduced labor and material costs.  Approximately 63% of
the increased revenues resulted from shipments of commercial products.

     During 1997, Vari-L had three significant successes associated with
its commercial product line:  1) The Company received approval from the
U.S. Patent and Trademark Office of a patent on a new 1.2 volt VCO, which
has the lowest energy consumption available in the industry at .0035
watts.  Because low energy consumption is a crucial element of battery
powered applications such as hand-held telephones and pagers, the new
patent enhances the Company's position in the subscriber hand-held
telephone and pager marketplace.  2) During the third quarter, the Company
announced the development of a new 5.8 gigaHertz VCO suitable for a
variety of applications in the third ISM license-free frequency-band
market, including intelligent highway vehicle systems and other advanced
technologies.  The 5.8 Ghz VCO has state-of-the art phase noise
performance and the lowest energy consumption of any product in its class.
3) The Company estimates that, as a result of its sales efforts, its
market share of the cellular infrastructure, purchased-VCO market in
Western Europe has increased from approximately 20% in 1995 to as much as
75% in 1997.

     Approximately 37% of the increase in revenues over 1996 resulted from
other corporate successes during the year, including the introduction of
fiber-optic products in the Signal Processing Components line.  The
Company's patent for this product was approved in April of 1997 by the
U.S. Patent and Trademark Office.  The patent is for a high-impedance
ratio, wide-band transformer circuit used in the conversion of light wave
signals to and from radio frequency signals.  Demand for the transformer
circuit is expected to come from a variety of applications, including
CATV.

     During 1997, the Company brought the high-speed, automated assembly
process utilized for its commercial products in house with the purchase of
two pick and place assembly lines.  Previously, the manufacturing cost for
this production process was provided by contract manufacturers and
averaged 4.5 cents per placement.  The in-house lines have reduced this
cost to approximately 1.5 cents per placement, a 67% reduction.  Certain
other production processes which had been manually performed were also
automated during 1997.  These improvements have allowed the Company to
increase its product shipments without a corresponding increase in
production personnel and related expenses.  Similar technological advances
in manufacturing processes will be applied to the Company's non-commercial
assemblies.  In addition, a fully-automated assembly line is being
acquired for its newest product entry into the subscriber market.

          The Company is continuing to work toward developing a
manufacturing facility in China through its Chinese joint venture
agreement.  Direct investments of capital and other resources in China
have been limited, however, because of unanticipated delays in the receipt
of Chinese patents on the Company's intellectual property.  Under the
agreement, production will not begin until satisfactory Chinese patent
protection has been obtained.  The Company has taken steps to minimize the
impact that these delays could have had on future shipments of high-volume
commercial products.  In particular, as described above, the Company has
automated and refined its domestic manufacturing systems and procedures to
reduce labor costs and diminish the economic advantages of overseas
manufacturing.

     Construction on the Company's newest U.S. facility, its corporate
headquarters which houses sales, administration, personnel, quality
assurance and finance, was completed in November 1997.   The space
formerly occupied by those departments is being remodeled to accommodate
all of the manufacturing and engineering functions related to the
Company's Signal Processing Components and Wide-Band VCO product lines.
In addition, the Company is finishing  the second floor of its new
corporate headquarters building for implementation of a fully automated
production line for its newest product entry aimed at the subscriber
market for hand-held telephone and pager components.


RESULTS OF OPERATIONS

                            OPERATING REVENUES

     Sales revenues increased approximately $5.2 million (42%) in 1997,
from $12.2 million in 1996 to $17.4 million in 1997.  This includes a 37%
increase in military/aerospace/industrial shipments (8% of which derives
from the Company's new fiber-optic components products) and a 63% increase
in commercial shipments.  Revenues from the Company's Commercial Signal
Source Components  were approximately $8.9 million, or 51% of revenues, in
1997 as compared to $5.6 million, or 46%, in 1996.  Revenues from the
Company's Signal Processing Components product line were approximately
$3.3 million, or 19% of revenues, in 1997 as compared to $1.7 million, or
14%, in 1996.  Revenues from sales of the Company's wide-band VCO products
were approximately $5.0 million, or 29% of revenues, in 1997 as compared
to $3.8 million, or 31%, in 1996.  Revenues from sales of products that
combine the Company's Signal Processing Components with wide-band VCOs
were approximately $.3 million in 1997, or 2% of revenues, as compared to
$1 million, or 8% of revenues, in 1996.

                            COST OF GOODS SOLD

     Cost of goods sold, as a percent of sales revenues, was 48% in 1997
and 51% in 1996.  Gross profit margins were 52% for 1997 and 49% for 1996.
The decrease in the cost of goods sold in 1997 reflects improvements in
production processing that have increased personnel efficiencies and
reduced labor and material costs.

                    GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses increased approximately $524,000,
or 42%, from $1,237,000 in 1996 to $1,761,000 in 1997.  Increases to G & A
primarily reflect additional staffing in the personnel, accounting and
management information systems departments, in line with the growth of the
Company, as well as increasing shareholder and investor relations
expenses.

                           ENGINEERING EXPENSES
                                     
     Engineering expenses increased approximately $331,000, or 48%, from
$695,000 in 1996 to $1,026,000 in 1997, reflecting increased costs for
engineering personnel and expenses and equipment costs to expand and
support development of the Company's product lines.

                             SELLING EXPENSES

     Selling expenses increased approximately $610,000, or 41%, from
$1,472,000 in 1996 to $2,082,000 in 1997.  Certain selling expenses, such
as sales commissions, are directly related to the amount of product
shipped and sales revenue generated.  Revenues increased 42% from 1996 to
1997.

                        INTEREST INCOME AND EXPENSE

     The Company manages its credit facility and interest bearing
investments in tandem.

     Interest expense increased approximately $299,000, or 64%, from
$468,000 in 1996 to $767,000 in 1997.  The increase in interest expense
primarily reflects interest paid on the $7.5 million of convertible
debentures sold in a March 1997 private offering, prior to their
conversion to common stock.

     Interest income increased approximately $39,000, or 27%, from
$146,000 in 1996 to $185,000 in 1997.  The Company's investment in a
mutual fund of U.S. Government securities, from which interest income is
earned, was approximately $5.88 million and $1.18 million at December 31,
1997 and 1996, respectively.

                       DEPRECIATION AND AMORTIZATION

     Depreciation and amortization increased approximately $291,000, or
69%, from $425,000 in 1996 to $716,000 in 1997.  The increase reflects
depreciation on increased investments in property, equipment and leasehold
improvements.  Depreciation and amortization expense is expected to
continue to increase as a result of these and future capital investments.

                              OTHER EXPENSES

     Other expenses decreased approximately $67,000, or 30%, from $223,000
in 1996 to $156,000 in 1997, due to full amortization in 1996 of costs
related to a 1992 covenant not to compete.  The decrease was partially
offset by the amortization of a 1996 covenant not to compete.

                                NET INCOME
                                     
     Net income increased $857,000, or 73%, from $1,178,000 in 1996 to
$2,035,000 in 1997.  The increase in net income was due principally to the
growth in net sales from 1996 to 1997.

                            EARNINGS PER SHARE
                                     
     Basic earnings per share increased 13 cents, or 41%, from $.32 in
1996 to $.45 in 1997 on weighted average outstanding shares that increased
791,907 shares, or 21%, from 3,736,516 shares in 1996 to 4,528,423 shares
in 1997.

     Diluted earnings per share increased 13 cents, or 43%, from $.30 in
1996 to $.43 in 1997 on weighted average shares outstanding and dilutive
securities that increased 913,488, or 23%, from 3,912,027 in 1996 to
4,825,515 in 1997.

FINANCIAL CONDITION

                                  ASSETS
                                     
     Total assets increased approximately $11.4 million during 1997.  The
increase resulted primarily from the Company's capital investments in its
infrastructure and the proceeds received from its March 1997 convertible
debenture offering.

     Cash and cash equivalents increased approximately $4.8 million from
December 31, 1996 to December 31, 1997.  The increase resulted principally
from the issuance of convertible debentures which were subsequently
converted into common shares.  Net proceeds from the offering were
approximately $6.5 million.

     Property and equipment increased approximately $5.9 million as the
result of extensive capital improvements and acquisitions during 1997.
This included the commencement of the retooling and remodeling of the
military/aerospace manufacturing facility, the acquisition of high-speed
test and automated production equipment for commercial assemblies, and
costs related to the leasehold and furnishing of the new corporate
headquarters building.

     Trade accounts receivable increased approximately $2.4 million, or
89%, from December 31, 1996 to December 31, 1997.  This was due
principally to the timing of the approximately $5.6 million in fourth
quarter shipments.

     In 1997, the Company was reimbursed for lease acquisition costs of
approximately $641,000 which had been advanced to the contractor who
constructed the Company's new corporate headquarters.

     Inventories decreased approximately $761,000, or 9%, during 1997.
Components of the decrease were approximately $137,000 in finished goods,
$784,000 in work in process and $48,000 in the value of gold bullion
(adjusted for the market value which was below cost at December 31, 1997),
offset by an increase in raw materials of approximately $207,000.  The
Company anticipates that the inventory quantities will level off or
continue to decrease as more automation of materials planning is
implemented.
                                     
                                LIABILITIES
                                     
     Total liabilities increased approximately $1.6 million during 1997,
$1.3 million of which was attributable to the increase in deferred income
taxes.
                                     
                            STOCKHOLDERS' EQUITY
                                     
Common stock and paid-in capital increased approximately $7.8 million
during 1997 due to the exercises of stock options, the issuance of shares
under the employee stock purchase plan, and the conversion of $7.5 million
in subordinated debentures, plus accrued interest, to common stock.

                                 LIQUIDITY

     At December 31, 1997, the Company's working capital was $15.9 million
compared to $8.4 million at December 31, 1996.  The Company's current
ratio was 6.1 to 1 as of December 31, 1997 and 2.7  to 1 at December 31,
1996.

     The increase in working capital was due to several factors.  Cash and
cash equivalents increased $4.7 million from the investment of the
proceeds of the $7.5 million debenture offering, net of offering costs,
and after utilization of funds for capital improvements.  Trade accounts
receivable increased $2.4 million, due principally to the later timing of
the shipments in the fourth quarter ($5.6 million), which increased
approximately $1.2 million from 1996 to 1997.  The Company reduced the
outstanding amount of its bank line of credit by $.3 million and
reclassified the balance as a long-term liability because of its April 30,
1999 maturity date.  These increases were partially offset by the
repayment of the lease acquisition costs that had been advanced to the
contractor for the construction of the Company's new corporate
headquarters building ($.6 million), by decreases in inventory ($.8
million) and prepaid expenses ($.1 million), and by increases in trade
payables and other accrued liabilities ($.3 million).

                             CAPITAL RESOURCES

     On August 13, 1997, the Company restructured its credit facilities,
renewing its line of credit agreement with its present banking
institution, which is secured by accounts receivable, inventory and
general intangibles, and taking its existing term loan, plus increasing
its credit facility, which is secured by all of the Company's fixed
assets,  to a second banking institution.

     The line of credit agreement was renewed and provides for borrowings
of up to $3.5 million and matures April 30, 1999.  Interest is payable
monthly, calculated at prime. At December 31, 1997, the outstanding
balance of the line of credit was $1,813,409.

     The Company has two separate loans under its term loan agreement. The
first loan is a conventional term loan.  Interest accrues on the
outstanding principal balance of the term loan at 8.01 percent and monthly
principal and interest payments of $73,279 are required.  Unpaid principal
and accrued interest are due February 13, 2001.  The balance of the term
loan at December 31, 1997 was $4,532,976.  Proceeds of this loan were used
to pay off the term loan at the first banking institution.

     The second loan is a revolving equipment loan which provides for
borrowings up to $2,500,000.  Interest accrues on the outstanding
principal balance of the revolving line at prime plus .25%.  Borrowings
can be converted to term notes which bear interest at a rate which adjusts
to the 3-year treasury note rate plus 1.95%.  When converted, the new term
debt requires monthly principal and interest payments calculated on a
seven-year amortization basis with a 42 month maturity.  The revolving
loan matures on August 13, 1998.  As of December 31, 1997, $500,000 had
been advanced and converted to a term note.  Interest accrues on the
outstanding principal balance of this loan at 7.72 percent and monthly
principal and interest payments of $7,550 are required.

     The Company has financed the purchase of vehicles with promissory
notes bearing interest rates ranging from 7.20 percent to 9.25 percent.
Monthly principal and interest payments totaling $1,879 are required.  The
notes mature from 1998 through 2000.  The outstanding balance of these
notes at December 31, 1997 was $32,178.

     The Company finances certain of its annual insurance premiums through
a financing company.  The amounts due under these loans totaled $23,730 as
of December 31, 1997 and are paid in monthly installments of $8,051 with
an interest rate of 7.24%.

     On March 4, 1997, the Company entered into an agreement to sell up to
an aggregate of $7.5 million in four year, 7% convertible debentures
together with 750,000 non-redeemable common stock purchase warrants
exercisable at $9.50 per share for a period of three years.  The unpaid
principal balance and accrued interest of the debentures could be
converted into shares of the Company's common stock at the election of the
holder thereof at $9.50 per share or 84% of the 10-day average closing bid
price prior to the date of receipt by the Company of the holder's written
request, whichever was less.  As of December 31, 1997 the Company had sold
$7,500,000 of debentures and 750,000 of related warrants, and had
converted the $7,500,000 in debentures plus accrued interest into
1,264,778 shares of $.01 par value Common Stock.  All 750,000 warrants
remained outstanding as of December 31, 1997.

     The Company believes that it has sufficient financial resources
available to meet its short-term working capital needs through cash flows
generated by operating activities and through the management of its
sources of financing.  The Company also believes that, as the result of
the sales of the convertible debentures, it has adequate capital resources
to continue its growth plans.

                                  BACKLOG

     Total backlog of unfilled firm customer orders ("backlog") at
December 31, 1997 was $16.6 million compared with $14.4 million at
December 31, 1996.  The increase was due to an increase in new firm
customer orders in 1997 of $7.1 million, net of increased shipments in
1997 of $5.2 million.  The increase in firm customer orders reflects the
Company's success in capturing an estimated 75% of the market for cellular
infrastructure, purchased-VCOs in Western Europe during 1997.

                        FORWARD LOOKING STATEMENTS

     Some of the statements contained in this document 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
success  of the products into which the Company's products are integrated,
governmental  action  relating  to wireless communications  licensing  and
regulation,  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, future economic conditions
generally, as well as other factors.

ITEM 7.  FINANCIAL STATEMENTS.

     See pages F-1 through F-24 for this information.

                           Vari-L Company, Inc.
                       Index to Financial Statements
                        December 31, 1997 and 1996
                                     
     Independent Auditor's Report                             F-1

     Balance Sheets                                     F-2 - F-3

     Statements of Income                                     F-4

     Statements of Stockholders' Equity                       F-5

     Statements of Cash Flows                                 F-6

     Notes to Financial Statements                     F-7 - F-24




HAUGEN, SPRINGER & CO.
Certified Public Accountants

9250 East Costilla Avenue                    Robert S. Haugen, C.P.A.
Suite 150                                    Charles K. Springer, C.P.A.
Englewood, Colorado 80012
(303) 799-6969  FAX (303) 799-6974


                       INDEPENDENT AUDITOR'S REPORT
                       ----------------------------





The Board of Directors and Stockholders
Vari-L Company, Inc.

     We have audited the accompanying balance sheets of Vari-L Company,
Inc. as of December 31, 1997 and 1996, and the related statements of
income, stockholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

     In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Vari-L
Company, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.


                                 /s/Haugen, Springer & Co.
                                 HAUGEN, SPRINGER & CO.


February 24, 1998
Denver, Colorado



                           VARI-L COMPANY, INC.

                              BALANCE SHEETS

<TABLE>
<CAPTION>

                                               December 31,
                                        -------------------------
                                           1997           1996
                                       -----------     ----------

<S>                                     <C>          <C>
Assets
------

Current Assets:

  Cash and cash equivalents             $5,970,582    $1,224,727
  Accounts receivable:
    Trade, less $18,000 and $4,000
      allowance for doubtful accounts    5,172,874     2,744,180
    Lease acquisition costs                      -       641,486
  Inventories                            6,936,890     7,740,976
  Prepaid expenses and other               887,272       990,130
                                       -----------   -----------

    Total Current Assets                18,967,618    13,341,499
                                       -----------   -----------

Property and Equipment:

  Machinery and equipment               15,730,870    11,772,250
  Furniture and fixtures                 1,200,453       993,822
  Leasehold improvements                 4,707,324     2,993,081
                                       -----------   -----------

                                        21,638,647    15,759,153

  Less accumulated depreciation
    and amortization                   (3,313,483)   (2,654,405)
                                       -----------   -----------

    Net Property and Equipment          18,325,164    13,104,748
                                       -----------   -----------

Other Assets:

  Long-term inventories                    375,000       332,000
  Covenant not to compete (Note 11)         66,389        99,581
  Patents, net of accumulated
   amortization of $88,210
   and $31,010                             504,895       337,963
  Other                                  1,317,238       899,572
                                       -----------   -----------

    Total Other Assets                   2,263,522     1,669,116
                                       -----------   -----------

TOTAL ASSETS                           $39,556,304   $28,115,363
============                           ===========   ===========

</TABLE>
              SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS



                           VARI-L COMPANY, INC.

                              BALANCE SHEETS
(Continued)

<TABLE>
<CAPTION>
                                               December 31,
                                        -------------------------
                                           1997           1996
                                        ----------    ------------

Liabilities and Stockholders' Equity
------------------------------------

<S>                                   <C>            <C>
Current Liabilities:
  Bank line of credit                  $         -    $2,125,409

  Current maturities of:
    Long-term debt                         596,645       588,934
    Obligations under capital leases             -        10,135
  Financed insurance premiums               23,730        33,652
  Trade accounts payable                 1,851,057     1,499,992
  Accrued expenses and other               628,718       584,938
  Due to related party                           -        77,774
                                       -----------   -----------

    Total Current Liabilities            3,100,150     4,920,834

Bank line of credit                      1,813,409             -
Long-term debt                           4,464,021     4,155,121
Obligations under capital leases                 -         6,131
Deferred income taxes                    2,343,654     1,036,865
                                       -----------   -----------

    Total Liabilities                   11,721,234    10,118,951
                                       -----------   -----------

Commitments and Contingencies (Note 10)

Stockholders' Equity:
  Common stock-$0.01 par value,
  50,000,000 shares authorized;
  5,251,288 and 3,806,138
  shares issued and outstanding,
  respectively                              52,513        38,061
  Paid-in capital                       20,211,589    12,422,232
  Retained earnings                      7,589,668     5,554,819
  Less loans for purchase of stock        (18,700)      (18,700)
                                       -----------   -----------

    Total Stockholders' Equity          27,835,070    17,996,412
                                       -----------   -----------

TOTAL LIABILITIES AND STOCKHOLDERS'
  EQUITY                               $39,556,304   $28,115,363
  =================================    ===========   ===========

</TABLE>

              SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                           VARI-L COMPANY, INC.

                           STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                         Years Ended December 31,
                                       ---------------------------
                                           1997           1996
                                       ------------   ------------

<S>                                    <C>           <C>
Net sales                              $17,385,364   $12,210,517

Cost of products sold                    8,365,555     6,226,755
                                       -----------   -----------

Gross profit                             9,019,809     5,983,762
                                       -----------   -----------

Other income and expenses:

  General and administrative expenses    1,761,111     1,237,526
  Engineering expenses                   1,026,009      695,222
  Selling expenses                       2,082,336     1,472,543
  Profit sharing plan contribution          17,803         1,758
  Interest expense                         767,061       468,259
  Interest income                        (185,175)     (146,102)
  Other expenses                           155,515       222,785
                                       -----------   -----------

                                         5,624,660     3,951,991
                                       -----------   -----------

Income before income taxes               3,395,149     2,031,771

Income taxes                             1,360,300       853,300
                                       -----------   -----------

NET INCOME                              $2,034,849    $1,178,471
==========                             ===========   ===========

Basic earnings per share               $       .45   $       .32
                                       ===========   ===========

Diluted earnings per share             $       .43   $       .30
                                       ===========   ===========

</TABLE>


              SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                           VARI-L COMPANY, INC.

                    STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                            TOTAL
                                               LOANS FOR    STOCK-
               COMMON   PAID-IN      RETAINED   PURCHASE   HOLDERS
               STOCK    CAPITAL      EARNINGS   OF STOCK    EQUITY
               ------   -------      --------   --------    --------

<S>           <C>       <C>         <C>        <C>      <C>
Balances
 12/31/95     $ 36,249  $11,847,557 $4,376,348 $(18,700)$16,241,454

Stock options
 exercised       1,128       95,497          -         -     96,625

Warrants and
 units
 exercised         570      398,430          -         -    399,000

Issued under
 employee stock
 purchase plan      94       60,785          -         -     60,879

Issued under
 stock grant plan   20       19,963          -         -     19,983

Net income           -            -  1,178,471         -  1,178,471
                ------   ----------  ---------   ------- ----------

Balances
 12/31/96       38,061   12,422,232  5,554,819  (18,700) 17,996,412

Issued from
 conversion of
 debentures     12,648    6,465,983          -         -  6,478,631

Stock options
 exercised       1,717    1,260,939          -         -  1,262,656

Issued under
 employee stock
 purchase plan      75       51,522          -         -     51,597

Issued under
 stock grant plan   12       10,913          -         -     10,925

Net income           -            -  2,034,849         -  2,034,849
               -------  ----------- ----------  --------  ---------

Balances
 12/31/97      $52,513  $20,211,589 $7,589,668 $(18,700)$27,835,070
               =======  =========== ==========  ======== ==========

</TABLE>

              SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                           VARI-L COMPANY, INC.

                         STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                           1997            1996
                                       -----------      ----------

<S>                                   <C>            <C>
Net cash provided by (used in)
 Operating activities (Note 16)        $ 1,846,726   $  (803,300)
                                       -----------    -----------

Cash flows from investing activities:

  Purchases of property and equipment  (5,879,494)    (6,481,480)
                                      ------------   ------------

    Net cash (used in) investing
     activities                        (5,879,494)    (6,481,480)
                                      ------------   ------------

Cash flows from financing activities:

  Lease acquisition costs repaid
   (advanced)                              641,486      (641,486)
  Net increase in long-term debt           316,611      2,533,527
  Repayments of capital lease
   obligations                            (16,266)       (26,490)
  Borrowings under bank line
   of credit                             1,420,000      2,495,499
  Repayments under bank line
   of credit                           (1,732,000)    (2,217,392)
  Net (repayments) borrowings
   for insurance financing                 (9,922)         33,652
  Repayments of debentures                       -      (112,500)
  Net proceeds from stock issuances      8,158,714        576,487
                                       -----------   ------------

    Net cash provided by financing
     activities                          8,778,623      2,641,297
                                       -----------   ------------

    Net increase (decrease) in cash      4,745,855    (4,643,483)

Cash and cash equivalents
 at beginning of year                    1,224,727      5,868,210
                                       -----------    -----------

Cash and cash equivalents
 at end of year                         $5,970,582     $1,224,727
                                       ===========    ===========

Supplemental disclosure of cash
 flows information:

Cash paid for interest                 $   692,192     $  470,004
                                       ===========    ===========

</TABLE>

              SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                           VARI-L COMPANY, INC.

                       NOTES TO FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         ------------------------------------------

    Organization and Nature of Operations
    -------------------------------------

    Vari-L Company, Inc. is a manufacturer of electronic components and
    was founded in 1953.  The Company's business is the design,
    manufacture, and marketing of microwave signal processing components
    and devices used in the communications industry.  The Company's
    products are sold to original equipment manufacturers of communication
    equipment, either in the military or commercial marketplace in the
    United States and internationally.
    
    Use of Estimates
    ----------------

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

    Cash and cash equivalents include a mutual fund which is convertible
    to a known amount of cash.
    
    Inventories
    -----------
    
    Inventories are stated at the lower of cost (first-in, first-out
    method) or market.
    
    Property and Equipment
    ----------------------
    
    Property and equipment are recorded at cost.  Depreciation and
    amortization for the principal components of property and equipment
    are computed using straight-line and accelerated methods over 1 to 12
    year estimated useful lives.  Other components of property and
    equipment are depreciated using units-of-production methods which
    recognize the productive lives of the underlying assets.

    Stock Compensation Plans
    ------------------------

    The Company applies Accounting Principles Board (ABP) Opinion No. 25,
    Accounting for Stock Issued to Employees, in accounting for its stock
    compensation plans. The Company discloses the fair value of those
    plans pursuant to Statement of Financial Accounting Standards (SFAS)
    No. 123, Accounting for Stock-Based Compensation.
    
    Income Taxes
    ------------
    
    The Company uses the asset and liability method as identified in SFAS
    No. 109, Accounting for Income Taxes.
    
    Earnings Per Share
    ------------------

    The Company has adopted SFAS No. 128, Earnings Per Share, resulting in
    the restatement of earnings per share for 1996.  Basic earnings per
    common share are based upon the weighted average shares outstanding.
    Outstanding stock options, warrants, and convertible debentures are
    treated as common stock equivalents for purposes of computing diluted
    earnings per share and represent the difference between basic and
    diluted weighted average shares outstanding.
    
    Research and Development Costs
    ------------------------------

    Research and development costs are charged to expense when incurred.
    Research and development expense for the years 1997 and 1996 totalled
    $1,026,009, and $695,222, respectively.
    
    Valuation of Long-Lived Assets
    ------------------------------

    The Company reviews long-lived assets, including intangible assets,
    for impairment whenever events or changes in circumstances indicate
    that the carrying amount of an asset may not be recoverable.  The
    Company establishes guidelines for determining fair value based on
    future net cash flows for the use of the asset and for the measurement
    of an impairment loss.  Any impairment loss is recorded in the period
    in which the recognition criteria are first applied and met.
    
    Reclassifications
    -----------------

    Certain 1996 amounts have been reclassified so as to conform with 1997
    presentation.
    


NOTE 2 - LEASE ACQUISITION COSTS
         -----------------------

    During 1996, the Company advanced $641,486 to a contractor for the
    acquisition of land on which the contractor was to build an office and
    manufacturing facility which the Company would lease.  During 1997,
    the facility was completed and the contractor repaid this advance to
    the Company.
    
NOTE 3 - INVENTORIES
         -----------

     Inventories consist of the following:

<TABLE>
<CAPTION>
     
                                     December 31,
                                     ------------
                                  1997           1996
                              ------------   -----------

          <S>                 <C>            <C>
          Finished goods      $1,173,847     $1,353,584
          Work in process      2,405,396      3,189,200
          Raw materials        3,202,454      2,995,138
          Gold bullion           155,193        203,054
                              ----------     ----------

                              $6,936,890     $7,740,976
                              ==========     ==========

          Long-term
           inventories        $  375,000     $  332,000
                              ==========     ==========
</TABLE>

    The gold bullion was purchased for purposes of managing the cost of
    gold consumed in the Company's manufacturing process.
    
    The Company's normal operating cycle for certain products may be in
    excess of one year, and the Company occasionally takes advantage of
    quantity discounts for raw materials.  Also, the Company manufactures
    some finished goods in anticipation of customer demands.  As a result
    of these factors, the Company maintains certain inventory quantities
    in excess of one year's supply which are accordingly classified as
    long-term.
    
NOTE 4 - PROPERTY, EQUIPMENT, AND OTHER ASSETS
         -------------------------------------
    
    During 1997 and 1996, the Company invested significant amounts in the
    remodeling of its leased facilities and a management information
    system including digital communication and computer network systems.
    The Company has capitalized certain direct and overhead costs related
    to these projects.
    
    Patents are carried at cost less accumulated amortization which is
    calculated on a straight-line basis over the estimated useful lives,
    which is generally 17 years.
    

    Other assets at December 31, 1997 and 1996 included approximately
    $844,000 and $428,000, respectively, of costs related to the Company's
    efforts to obtain ISO 9001 registration for its commercial products
    operation.  These costs consisted of wages, travel, training,
    consulting, and related overhead costs.  These costs will be amortized
    commencing with the date of successful registration, which occurred
    January 1998.
    
    Other assets at December 31, 1997 and 1996 also included approximately
    $355,000 and $159,000 of costs associated with a joint venture
    agreement with the Chinese government; see Note 17.  These costs will
    be accounted for as an investment in the joint venture company once
    that entity has been formally organized.
    
NOTE 5 - BANK LINE OF CREDIT AND LONG-TERM DEBT
         --------------------------------------

    The Company has credit facilities with two banking institutions.  The
    first consists of a $3.5 million line of credit agreement.  The second
    consists of two agreements, a $4.7 million term loan agreement and a
    $2.5 million revolving equipment term loan agreement.  The second
    credit facility was effective August 1997.
    
    Line of Credit
    --------------

    The line of credit was restructured August 1997 and provides for
    borrowings of up to $3.5 million.  Interest is payable monthly,
    calculated at prime.  The line of credit matures April 30, 1999.  At
    December 31, 1997, the outstanding balance due under the line of
    credit was $1,813,409.
    
    The Company's accounts receivable, inventory, and general intangible
    assets secure the line of credit.
    
    Term Loan
    ---------

    Interest accrues on the outstanding principal balance of the term loan
    at 8.01% and monthly principal and interest payments of $73,279 are
    required.  The term loan matures February 13, 2001.  At December 31,
    1997, the balance due under the term loan was $4,532,976. Proceeds
    from this loan were used to repay the term loan from the Company's
    prior credit facility.
    

    Revolving Equipment Term Loan
    -----------------------------

    The equipment term loan consists of a $2.5 million revolving line with
    a conversion feature.  Interest accrues on the balance due under the
    revolving line at prime plus one-quarter percent and is payable
    monthly.  The revolving line component matures August 13, 1998.  At
    December 31, 1997, there were no amounts outstanding under the
    revolving line.
    
    Borrowings under the revolving line can be converted to term notes,
    which will bear interest at the three-year treasury note rate plus
    1.95 percent.  Term loans require monthly principal and interest
    payments calculated on a seven-year amortization basis with a 42-month
    maturity.  During November 1997, the Company borrowed $500,000 under
    the revolving line and converted it to a term note. Interest accrues
    on this term note at 7.72 percent and monthly payments of $7,750 are
    required.
    
    The Company's property and equipment secure the term loan and
    revolving equipment term loan.
    
    Under the credit facilities, the Company must maintain certain
    financial ratios and obtain the banks' approvals prior to entering
    into various transactions, including the payment of dividends,
    disposal of significant assets, changing its executive management, or
    entering into direct borrowing arrangements or contingent liabilities.
    
    Promissory Notes
    ----------------
    
    The Company has financed the purchase of vehicles with promissory
    notes bearing interest at rates ranging from 7.20 to 9.25 percent.
    Monthly principal and interest payments totalling $1,879 are required.
    The notes mature from 1998 through 2000.
    


     Long-term debt consists of the following:

<TABLE>
<CAPTION>
     
                                     December 31,
                            ------------------------------
                                  1997           1996
                             -------------  -------------

     <S>                      <C>            <C>
     Term loan                $4,532,976     $4,694,307
     Equipment term loan         495,512              -
     Vehicle notes                32,178         49,748
                              ----------     ----------

                               5,060,666      4,744,055

     Less current
      installments               596,645        588,934
                              ----------     ----------

          Long-term portion   $4,464,021     $4,155,121
                              ==========     ==========
</TABLE>

    Scheduled annual principal payments on the bank line of credit and
    long-term debt for each of the next five years are as follows:
    
               1998           $  596,645
               1999            2,479,451
               2000              696,932
               2001              993,657
               2002              737,407
                              ----------

                              $5,504,092
                              ==========

NOTE 6 - STOCKHOLDERS' EQUITY
         --------------------

    During 1997, the Company sold 75 units of debentures and warrants
    under a securities purchase agreement.  The units consisted of
    $7,500,000 in four-year, seven percent subordinated, convertible
    debentures and 750,000 non-redeemable warrants to purchase common
    stock at a price of $9.50 per share, exercisable for a period of three
    years.  The debentures plus accrued interest of approximately $97,000
    were subsequently converted into 1,264,778 common shares. Pursuant to
    the agreement, the number of shares issued upon conversion equaled 84
    percent of the 10-day average closing bid price prior to conversion.
    In connection with the sale of the units, the Company issued 28,900
    warrants to the underwriter.  The exercise price of the warrants is 84
    percent of the 10-day average closing bid price prior to exercise, or
    $9.50 per share, whichever is less.  These warrants expire March 2002.
    
    The following is an analysis of the changes in the number of issued
    and outstanding common shares for the years ended December 31, 1997
    and 1996:
    
          Number of shares at December 31, 1995       3,624,977
          Issued on exercise of stock options           112,845
          Issued on exercise of warrants and units       57,000
          Issued under employee stock purchase plan       9,366
          Issued under stock grant plan                   1,950
                                                      ---------

          Number of shares at December 31, 1996       3,806,138
          Issued on conversion of debentures          1,264,778
          Issued on exercise of stock options           171,705
          Issued under employee stock purchase plan       7,467
          Issued under stock grant plan                   1,200
                                                      ---------

          Number of shares at December 31, 1997       5,251,288
                                                      =========


    The revised Colorado Business Corporation Act eliminated the concept
    of treasury stock for Colorado corporations.  Prior to the Act, the
    Company had $2,230 of par value treasury shares outstanding.
    Accordingly, the Company has reclassified the par value of these
    shares from common stock to paid-in capital as of December 31, 1995.
    
NOTE 7 - INCOME TAXES
         ------------
     
     
     The provisions for income taxes consisted of:

<TABLE>
<CAPTION>
     
                                     Years Ended
                                     December 31,
                              -------------------------
                                  1997           1996
                              ------------  -------------

          <S>                 <C>             <C>
          Deferred:
            Federal           $1,194,000       $751,700
            State                166,300        101,600
                              ----------       --------

          Total tax
           provisions         $1,360,300       $853,300
                              ==========       ========
</TABLE>

    For the years ended December 31, 1997 and 1996, the Company had no
    current federal or state income tax liabilities.
    
    Significant components of deferred tax balances as of December 31,
    1997 and 1996 were as follows:
    
                                       1997           1996
                                    ----------    -----------

<TABLE>
<CAPTION>

     <S>                           <C>            <C>
     Deferred tax liabilities:

       Depreciation and
        amortization               $2,488,326     $1,401,805
                                   ----------     ----------


     Deferred tax assets:
       Loss carryover
        - benefit of stock
         option exercises              75,237        288,145
       Other, net                      69,435         76,795
                                   ----------     ----------

         Total deferred
          tax assets                  144,672        364,940
                                   ----------     ----------

           Net deferred
            tax liabilities        $2,343,654     $1,036,865
                                   ==========     ==========
</TABLE>

    The Company generated net operating losses during 1996 and 1995 as a
    result of the income tax benefit of stock options exercised.  A
    portion of these losses were carried back to prior years for federal
    income tax purposes; such carrybacks are not allowed for state income
    tax purposes.  The amount of the losses available for carryover at
    December 31, 1997 was approximately $41,000 (federal) and $1.2 million
    (state).
    
    The differences between the U.S. federal statutory rate and the
    Company's effective tax rate are as follows:
    

<TABLE>
<CAPTION>
                                    1997           1996
                                   ------         ------

          <S>                      <C>            <C>
          U.S. federal
           statutory tax rate      34.00%         34.00%

          State income tax rate     5.00%          5.00%

          Officers' life
           Insurance and other      1.07%          3.00%
                                  ------         ------

          Effective tax rate       40.07%         42.00%
                                   =====          =====
</TABLE>

NOTE 8 - EARNINGS PER SHARE
         -------------------

    The following is a reconciliation of the net income (numerator) and
    number of shares (denominator) for the computations of basic and
    diluted earnings per share:
    
<TABLE>
<CAPTION>
                                     Income       Shares    Per Share
                                  (Numerator) (Denominator)Amount
                                   ----------  --------------------


  For the year ended December 31, 1996:
  ------------------------------------

<S>                               <C>           <C>          <C>
    Basic earnings per share      $1,178,471     3,736,516    $  .32
                                                              ======

    Effect of dilutive
     stock options                         -       175,511
                                  ----------     ---------

    Diluted earnings per share    $1,178,471     3,912,027    $  .30
                                  ==========     =========    ======

  For the year ended December 31, 1997:
  ------------------------------------

    Basic earnings per share      $2,034,849     4,528,423    $  .45
                                                              ======
    Effect of dilutive securities:
      Convertible debentures          58,033       185,895
      Stock options                        -       100,611
      Warrants                             -        10,586
                                  ----------     ---------

    Diluted earnings per share    $2,092,882     4,825,515    $  .43
                                  ==========     =========    ======
</TABLE>

    At December 31, 1997, the Company had 5,251,288 common shares
    outstanding.  As described in Note 6, the Company issued 1,445,150
    shares during 1997.  For purposes of computing earnings per share, the
    shares issued during the year were weighted for the period of time
    they were outstanding.
    
NOTE 9 - STOCK COMPENSATION PLANS
             ------------------------
    
    The Company has three stock-based compensation plans which are
    described below.  The Company applies APB No. 25 in accounting for its
    stock compensation plans.  For 1997, no compensation cost was
    recognized for the stock option portion of the plans.  During 1996,
    approximately $190,000 of compensation cost was charged to operations.
    Had compensation cost been determined on the basis of fair value
    pursuant to SFAS No. 123, net income and earnings per share would have
    been reduced to the following proforma amounts:
    

<TABLE>
<CAPTION>
                                       1997           1996
                                   -----------    -----------

     <S>                           <C>            <C>
     Net Income:    As Reported    $2,034,849     $1,178,471
                                   ==========     ==========

                    Pro Forma      $1,515,746     $  776,052
                                   ==========     ==========

     Earnings Per Share:
          Basic:    As Reported   $      .45    $       .32
                                   ==========    ===========

                    Pro Forma     $      .33    $       .21
                                   ==========    ===========

          Diluted:  As Reported   $      .43    $       .30
                                   ==========    ===========

                    Pro Forma     $      .33    $       .19
                                   ==========   ============
</TABLE>

    Stock Option Plan
    -----------------

    During 1987, the Company established a nonqualified tandem stock
    option/stock appreciation rights plan for key employees.  The plan,
    which was amended in 1990, 1994 and 1996, 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 3,000,000 shares of its common stock for
    issuance upon exercise of rights and options under the plan.
    Typically, rights and options have been granted subject to a vesting
    schedule, vesting  at the rate of 20 percent per year, becoming fully
    vested upon the change of control of the Company, and expiring 10
    years from the date of issuance.  Certain options granted to senior
    management are fully vested upon issuance.  The exercise price is
    equal to the fair market value of the Company's common stock on the
    grant date.
    
    The fair value of each option grant is estimated on the grant date
    using a binomial option-pricing model with certain weighted-average
    assumptions which, for 1997 and 1996 respectively, were:  expected
    volatility of 55 percent and 40 percent, risk-free interest rates of
    5.5 percent and six percent, and zero dividend yields for both years.
    The expected lives of the options were two years for grants to
    directors and senior management, and five years for all other grants.
    

    The binomial option-pricing valuation model was developed for use in
    estimating the fair value of traded options which have no vesting
    restrictions and are fully transferable.  In addition, option
    valuation models require the input of highly subjective assumptions,
    including the expected stock price volatility.  Because the Company's
    employee stock options have characteristics significantly different
    from those of traded options, and because changes in the subjective
    input assumptions can materially affect the fair value estimate, in
    management's opinion, the existing models do not necessarily provide a
    reliable single measure of the fair value of its employee stock
    options.
    
    Following is a summary of the status of the stock option plan during
    1997 and 1996:
    
<TABLE>
<CAPTION>
                                                         Weighted
                                                         Average
                                       Number            Exercise
                                     of Options           Price
                                    ------------       -----------

     <S>                            <C>                 <C>
     Outstanding at January 1, 1996   690,750            $ 6.90
     Granted                          298,502              8.39
     Exercised                      (140,000)              0.83
     Forfeited                       (17,712)             10.42
                                     --------

     Outstanding at
      December 31, 1996               831,540              7.30
                                     ========

     Options exercisable at
      December 31, 1996               496,950              7.51
                                     ========

     Weighted average fair value of
       options granted during 1996  $    2.67
                                    =========

     Outstanding at January 1, 1997   831,540              7.30
     Granted                          322,526             10.85
     Exercised                      (171,705)              7.22
     Forfeited                       (14,693)              9.35
                                    ---------

     Outstanding at
      December 31, 1997               967,668              8.47
                                    =========

     Options exercisable
      at December 31, 1997            680,126              8.45
                                    =========

     Weighted average fair value of
     options granted during 1997    $    4.42
                                    =========
</TABLE>

    Following is a summary of the status of stock options outstanding at
    December 31, 1997:
    
<TABLE>
<CAPTION>

Exercisable
                     Outstanding Options                     Options
                     -------------------                    -----------

                              Weighted
                              Average       Weighted             Weighted
       Exercise              Remaining      Average              Average
        Price               Contractual     Exercise             Exercise
        Range     Number        Life         Price     Number     Price
      ---------- -------    -----------     --------   ------    ---------

     <S>          <C>        <C>             <C>     <C>         <C>
        $2.21     104,500    5.9 years       $ 2.21    69,500    $ 2.21
      4.25-5.50     3,000    7.1               4.73     3,000      4.73
      7.75-10.75  855,168    8.2               9.21   602,626      9.14
     11.75-17.25    5,000    8.1              13.58     5,000     13.58
                  -------                             -------

                  967,668                             680,126
                  =======                             =======
</TABLE>

    Effective October 1, 1996, the Compensation Committee of the Company's
    Board of Directors modified the exercise price of certain stock
    options to $8.25 per share, which was the closing market price of the
    Company's common stock on that date.  This modification applied to
    substantially all options that had previously been granted at exercise
    prices in excess of $8.25 per share.
    
    The Company obtained an income tax deduction for the difference
    between the market value of the shares issued and exercise prices of
    options exercised during 1997 and 1996.  This deduction resulted in
    income tax benefits to the Company which have been credited to paid-in
    capital.
    
    Employee Stock Purchase Plan
    ----------------------------
    
    The Company adopted an employee stock purchase plan during 1995.
    Eligible employees may contribute up to 10 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 stock on specified dates.  A total of 800,000 common
    shares has been reserved under the plan, and the maximum number of
    shares to be issued is 200,000 per year.  Since the plan is
    noncompensatory, no charges to operations are recorded.
    
    Employee withholdings during 1997 were approximately $94,000 and were
    used to purchase 13,530 shares which were issued January 1998.
    Withholdings during 1996 were approximately $52,000.  During January
    1997, these withholdings were used to purchase 7,467 shares.
    
    Compensation cost for the SFAS No. 123 pro forma amounts was estimated
    using a binomial option-pricing model with certain assumptions similar
    to those used for the stock option plan.  The weighted-average fair
    value of those purchase rights granted in 1997 and 1996 was $1.65 and
    $1.24 per share, respectively.
    
    Stock Grant Plan
    ----------------
    
    During 1996, the Company adopted a stock grant plan under which stock
    grants can be made 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 grant plan.  The plan
    provides for automatic grants of 50 shares per month to nonmanagement
    members of the Compensation Committee of the Company's Board of
    Directors.  During 1997 and 1996, those members received grants for
    1,200 and 1,950 common shares, respectively.  Compensation cost
    charged to operations was measured by the fair market value of the
    stock on the date of the grants.
    
NOTE 10 - COMMITMENTS AND CONTINGENCIES
          -----------------------------
    
    Nonrelated Party Leases
    -----------------------

    The Company leases certain facilities under long-term operating
    leases, including a new office and manufacturing facility which the
    Company occupied November 1997.  Minimum future annual lease payments
    over the next five years are as follows:
    
                    1998           $  611,424
                    1999              615,282
                    2000              619,266
                    2001              623,388
                    2002              627,642
                                   ----------

                                   $3,097,002
                                   ==========

    Rent expense on these leases was $175,049 and $109,626 for 1997 and
    1996, respectively.
    
    Related Party Leases
    --------------------
    
    Certain facilities are leased under long-term operating leases from
    the Company's chairman and a partnership in which he is a partner.
    Minimum future annual lease payments over the next five years are as
    follows:
    
                    1998              $93,657
                    1999               48,000
                    2000               40,000
                    2001                    0
                    2002                    0
                                     --------

                                     $181,657
                                     ========

    Rent expense on these leases was $118,953 for 1997 and $105,513 for
    1996.
    
    Contingencies
    -------------
    
    The Company is contingently liable for guarantees of indebtedness owed
    by senior officers to a former officer referred to in Note 11. The
    amount of this contingent liability at December 31, 1997 was
    approximately $225,484.  The Company is also contingently liable as
    guarantor of the  mortgage on the facility it leases from the above-
    described partnership.  The amount of this mortgage at December 31,
    1997 was approximately $31,000.
    
NOTE 11 - AGREEMENTS WITH FORMER OFFICERS
          -------------------------------

    The Company is party to agreements with two of its former officers.
    Among other items, both agreements provided for a severance package, a
    consulting agreement, and a covenant not to compete against the
    Company.
    
    The first agreement was dated in 1992.  Amounts payable under the
    severance provision of this agreement are expensed by the Company when
    those amounts become due.  As of December 31, 1997, the amount of
    these future costs was $15,868, payable in 1998.  Of this amount,
    $8,595 is described in the agreement as rent on properties owned by
    the former officer.
    
         The second agreement was dated November 1996 and was entered into
    in connection with the employment agreements described in Note 13.
    The Company capitalized $99,581 as the cost of the covenant not to
    compete, which represented the total amount of severance pay due the
    former officer.  The covenant will be amortized using the straight-
    line method over the three year life of the covenant.
    
NOTE 12 - RELATED PARTY TRANSACTIONS
          --------------------------
    
    As disclosed in Note 11, certain amounts required to be paid to a
    former officer as part of her severance agreement are described in the
    agreement as rent on properties owned by the former officer. These
    payments totalled $25,290 for both 1997 and 1996.
    
    As described in Note 10, the Company leases certain facilities from
    the Company's chairman and a partnership in which he is a partner.
    
NOTE 13 - EMPLOYMENT AGREEMENTS
          ---------------------
    
    During November 1992, the Company entered into four-year employment
    agreements with its three senior officers.  These agreements were
    amended during 1995 to provide for automatic annual renewals of their
    full terms.  The agreements provide for minimum annual base salaries
    during the officers' employment with the Company, and for severance
    pay after employment.  Severance pay will be equal to two times the
    annual base salary in event of termination of employment by the
    Company, or one-third of the annual base salary in the case of
    voluntary resignation.  In the event of an officer's death, the
    Company will be obligated to pay the officer's estate an amount equal
    to the annual base salary for the greater of one year or the remaining
    term of the agreement.  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 severance allowance, whichever is
    greater.  The Company's Board of Directors has determined that amounts
    payable to the officers under the severance pay provisions of the
    agreements is adequate consideration for the officers' covenants not
    to compete.
    

    As described in Note 11, one of the senior officers retired during
    November of 1996.  The Company and the retiring officer entered into a
    consulting and severance agreement providing for nine months salary
    payable over the first year of a three year consulting relationship in
    lieu of the benefits provided by the senior officer's employment
    agreement.
    
NOTE 14 - FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
          -------------------------------------------------------
    
    Financial instruments which potentially expose the Company to
    concentrations of credit risk, as defined by SFAS No. 105, consist
    primarily of trade accounts receivable.  The Company's products are
    sold to original equipment manufacturers of communications equipment,
    either in the military or commercial marketplace.  In 1997 and 1996,
    the Company's two largest customers accounted for approximately 24
    percent and 19 percent, respectively, of total sales.   Approximately
    43 percent of the Company's 1997 sales were to foreign customers. The
    Company performs credit evaluations of its customers but generally
    does not require collateral.  Receivables due from foreign customers
    are generally insured with the United States Export-Import Bank.
    Otherwise, letters of credit are required of foreign customers.
    
    At December 31, 1997, the Company had $5,880,627 invested in a mutual
    fund and a $155,193 gold bullion investment.  The mutual fund invests
    in United States government securities and is not otherwise federally
    insured.  The gold bullion investment is held in street name by a
    national broker and is not federally insured.
    
    Disclosure of fair value information about certain financial
    instruments, whether or not recognized in the balance sheet, is
    required by SFAS No. 107.  The carrying amounts of cash and cash
    equivalents and gold bullion approximate fair value.
    
    The Company estimates the fair value of short- and long-term debt
    using discounted cash flow analysis, based on the Company's current
    incremental borrowing rates for similar arrangements.  The carrying
    amounts of the Company's short- and long-term debt at December 31,
    1997 approximate their fair values.  The fair value of contingent
    liabilities is based on the amount of the underlying instruments,
    which approximates the amounts disclosed in Note 10.
    

NOTE 15 - PROFIT SHARING PLAN
          -------------------
    
    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  stock, are determined by the
    Board of Directors at its sole  discretion.  During 1997 and 1996, the
    Company contributed cash of $17,803 and $1,758, respectively, to the
    plan.
    
NOTE 16 - RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
          ACTIVITIES
          --------------------------------------------------------------
    
    The reconciliation of net income to net cash provided by (used in)
    operating activities for the years ended December 31, 1997 and 1996 is
    as follows:
    
<TABLE>
<CAPTION>

                                              1997        1996
                                          ----------- -----------

<S>                                      <C>         <C>
Net income                               $ 2,034,849 $ 1,178,471
                                         ----------- -----------
Adjustments to reconcile net income
  to net cash provided by (used in)
  operating activities:
    Depreciation and amortization            716,278     424,812
    Deferred income taxes                  1,360,300     853,042
    Amortization of covenants not
     to compete                               33,192     114,656
    Changes in assets and liabilities:
      (Increase) in trade
       accounts receivable               (2,428,694)   (452,012)
      Decrease (increase)
       in inventories                        761,086 (2,184,992)
      Decrease (increase)
       in pre-paid expenses and
       other current assets                  102,858   (253,047)
      (Increase) patents
       and other assets                  (1,050,214)   (967,089)
      Increase in accounts payable           351,065     287,050
      Increase in accrued
       expenses and other                     43,780     195,809
      (Decrease) in due to
       related party                        (77,774)           -
                                         -----------  ----------

      Total adjustments                    (188,123) (1,981,771)
                                         -----------  ----------

Net cash provided by (used in)
  operating activities                    $1,846,726 $ (803,300)
                                         ===========  ==========
</TABLE>

NOTE 17 - CHINA JOINT VENTURE
                       -------------------

    During 1996, the Company entered into a joint venture agreement with
    Chen-Hui Company, a governmental corporation of the People's Republic
    of China, whereby the Company and Chen-Hui are to form a private joint
    venture company.  The joint venture will be owned 51 percent by the
    Company and 49 percent by Chen-Hui.  In exchange for these ownership
    interests, the Company is to contribute a license of its proprietary
    processes and manufacturing, marketing, and business expertise, while
    Chen-Hui is to contribute the lease of a manufacturing facility in
    Beijing and necessary government approvals.
    
    The joint venture company will manufacture wireless communications
    components for distribution to Chinese and other markets.  The Company
    will sell equipment and inventory to the joint venture necessary for
    its operations, as well as provide training for the joint venture's
    employees.
    
    As of December 31, 1997, China had not perfected patents on the
    Company's intellectual property.  This is required before the joint
    venture activity will commence.
    
NOTE 18 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
          ----------------------------------------------
    
    In February 1997, the Financial Accounting Standards Board issued
    Statement No. 129, Disclosure of Information about Capital Structure
    (SFAS No. 129).  In June 1997, the Financial Accounting Standards
    Board issued Statement No. 130, Reporting Comprehensive Income (SFAS
    No. 130), and Statement No. 131, Disclosure about Segments of an
    Enterprise and Related Information (SFAS No. 131).  The Company is
    required to adopt these statements in 1998.  SFAS No. 129 consolidates
    the existing guidance from several other pronouncements relating to an
    entity's capital structure.  SFAS No. 130 establishes new standards
    for reporting and displaying comprehensive income and its components.
    SFAS No. 131 requires disclosure of certain information regarding
    operating segments, products and services, geographic areas of
    operation and major customers.  Adoption of these statements is
    expected to have no impact on the Company's financial position,
    results of operations, or cash flows.
    


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     There were no changes in or disagreements with accountants on any
matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure during the period of this
report.



                                 PART III
                                     
ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     The information required herein is incorporated by reference from the
Company's definitive proxy statement for the 1998 annual meeting of
shareholders.

ITEM 10.  EXECUTIVE COMPENSATION

     The information required herein is incorporated by reference from the
Company's definitive proxy statement for the 1998 annual meeting of
shareholders.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required herein is incorporated by reference from the
Company's definitive proxy statement for the 1998 annual meeting of
shareholders.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required herein is incorporated by reference from the
Company's definitive proxy statement for the 1998 annual meeting of
shareholders.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

Exhibit No.  Description



             3.1a Restated Articles of Incorporation, as Amended, filed as
             Exhibit 4.1 to the Registrant's 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 Registrant's Form 10-KSB for the
             year ended December 31, 1996 and incorporated herein by
             reference.
             
             3.2  Restated Bylaws of the Company as adopted by its Board
             of Directors on November 4, 1992 filed as Exhibit 3.2 to the
             Registrant's Form SB-2 Registration Statement (No. 33-74704-
             D) and incorporated herein by reference
             
             4.1  Specimen Certificate for $.01 par value Common Stock of
             the Company filed as Exhibit 4.3 to the Registrant's Form SB-
             2 Registration Statement (No. 33-74704-D) and incorporated
             herein by reference
             
             4.2  Specimen Certificate for Warrant to Purchase Common
             Stock of the Company filed as Exhibit 4.4 to the Registrant's
             Form SB-2 Registration Statement (No. 33-74704-D) and
             incorporated herein by reference
             
             4.3  Rights Agreement with American Securities Transfer, Inc.
             dated March 15, 1996 filed as Exhibit 4.2 to Registrant's
             Form 8-A/A Registration Statement (No. 0-23866) and
             incorporated herein by reference
             
             4.4  Specimen Certificate for Right to Purchase $.01 par
             value Common Stock of the Company filed as Exhibit 4.3 to
             Registrant's Form 8-A/A Registration Statement (No. 0-23866)
             and incorporated herein by reference
             
             4.5  Securities Purchase Agreement between the Registrant and
             certain purchasers dated March 4, 1997 filed as Exhibit 4.5
             to Registrant's Form S-3 Registration Statement (No. 333-
             25173) and incorporated herein by reference
             
             4.6  Form of Convertible Subordinated Debenture issued to the
             Purchasers under the Securities Purchase Agreement dated
             March 4, 1997 filed as Exhibit 4.6 to Registrant's Form S-3
             Registration Statement (No. 333-25173) and incorporated
             herein by reference
             
             4.7  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 Registrant's Form S-3
             Registration Statement (No. 333-25173) and incorporated
             herein by reference
             
             4.8  Form of Warrant to Purchase Common Stock issued to
             Neidiger, Tucker, Bruner, Inc. under the Securities Purchase
             Agreement dated March 4, 1997 filed as Exhibit 4.8 to
             Registrant's Form S-3 Registration Statement (No. 333-25173)
             and incorporated herein by reference
             
             10.1 Executive Employment Agreement with Joseph H. Kiser,
             dated November 12, 1992, filed as Exhibit 10.1 to the
             Registrant's Form SB-2 Registration Statement (No. 33-74704-
             D) and incorporated herein by reference
             
             10.2 Executive Employment Agreement with David G. Sherman,
             dated November 12, 1992, filed as Exhibit 10.2 to the
             Registrant's Form SB-2 Registration Statement (No. 33-74704-
             D) and incorporated herein by reference
             
             10.3 Executive Employment Agreement with Alwin E. Branson,
             dated November 12, 1992, filed as Exhibit 10.3 to the
             Registrant's Form SB-2 Registration Statement (No. 33-74704-
             D) and incorporated herein by reference
             
             10.4 Amended and Restated Tandem Stock Option and Stock
             Appreciation Rights Plan, effective as of January 24, 1997
             filed as Exhibit 4.1 to the Registrant's Form S-8
             Registration Statement (No. 333-45137) and incorporated
             herein by reference.
             
             10.5 Equipment Lease Agreement dated May 26, 1993 between the
             Company and Rossi Hardesty Financial Inc., filed as Exhibit
             10.14 to the Registrant's Form SB-2 Registration Statement
             (No. 33-74704-D) and incorporated herein by reference
             
             10.6 Lease Agreement dated January 1, 1987, between the
             Company and 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
             Registrant's Form SB-2 Registration Statement (No. 33-74704-
             D) and incorporated herein by reference
             
             10.7 Amended Lease Agreement dated July 1, 1992 between the
             Company and Bello-1 Partnership for the facility located at
             11101 East 51st Avenue, Denver Colorado, filed as Exhibit
             10.16 to the Registrant's Form SB-2 Registration Statement
             (No. 33-74704-D) and incorporated herein by reference
             
             10.8 Consulting Agreement between Carolyn Y. Kiser and the
             Company, dated January 31, 1992, as amended March 23, 1993,
             filed as Exhibit 10.17 to the Registrant's Form SB-2
             Registration Statement (No. 33-74704-D) and incorporated
             herein by reference
             
             10.9 Settlement Agreement between the Company, 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 Registrant's Form SB-2
             Registration Statement (No. 33-74704-D) and incorporated
             herein by reference
             
             10.10     Warrant Agreement with American Securities
             Transfer, Inc., filed as Exhibit 10.19 to the Registrant's
             Form SB-2 Registration Statement (No. 33-74704-D) and
             incorporated herein by reference
             
             10.11     Consulting Agreement between the Company and the
             Neidiger/Tucker/Bruner, Inc. dated April 26, 1994, filed as
             Exhibit 10.23 to the Registrant's Form SB-2 Registration
             Statement (No. 33-74704-D and incorporated herein by
             reference
             
             10.12     Profit Sharing Plan and Trust Agreement, as amended
             and restated effective April 19, 1994 filed as Exhibit 10.16
             to the Registrant's Form 10-KSB for the year ended December
             31, 1994 and incorporated herein by reference
             
             10.13     Assignment of Amended Lease Agreement dated July 1,
             1992 between the Company and 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 Registrant's Form 10-KSB for the year ended
             December 31, 1994 and incorporated herein by reference
             
             10.14     Employee Stock Purchase Plan effective as of March
             10, 1995 filed as Exhibit 4.3a to the Registrant's Form S-8
             Registration Statement (No. 33- 81045) and incorporated
             herein by reference
             
             10.15     Stock Grant Plan dated March 15, 1996 filed as
             Exhibit 4.3b to the Registrant's Form S-8 Registration
             Statement (No. 33- 81045) and incorporated herein by
             reference
             
             10.16     Lease Agreement dated July 14, 1995 between the
             Company and 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 Registrant's
             Form 10-KSB for the year ended December 31, 1995 and
             incorporated herein by reference.
             
             10.17     Term Loan and Credit Agreement between the Company
             and Norwest Bank Colorado, National Association, dated May
             17, 1996 filed as Exhibit 10.1 to the Registrant's Form 10-
             QSB for the quarter ended June 30, 1996 and incorporated
             herein by reference.
             
             10.18     Lease Agreement dated March 12, 1997 between the
             Company and Five K Investments for the facility located at
             11900 E. 49th Avenue, Denver, Colorado filed as Exhibit 10 to
             the Registrant's Form 10-QSB for the quarter ended September
             30, 1997 and incorporated herein by reference.
             
             10.19     Business Loan Agreement between the Company and
             Bank One, Colorado, N.A., dated August 13, 1997  with a
             maturity date of August 13, 1998 filed herewith.
             
             10.20     Business Loan Agreement between the Company and
             Bank One, Colorado, N.A., dated August 13, 1997  with a
             maturity date of February 13, 2001 filed herewith.
             
             23   Consent of Haugen, Springer & Co. to the incorporation
             by reference of their financial statements in the
             Registrant's Form S-8 Registration Statements (No. 33-88666),
             (No. 33-81045) and (No. 333-45137) and the Registrant's Form
             S-3 Registration Statement (No. 333-25173).
             
             27   Financial Data Schedule
             


REPORTS ON FORM 8-K

     None.



                                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/ David G. Sherman
                                      David G. Sherman,
                                      President

     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/ Joseph H. Kiser                   Date:  March 10, 1998
Joseph H. Kiser, Chairman of the Board,
Chief Scientific Officer
and Director


/s/ David G. Sherman                  Date:  March 10, 1998
David G. Sherman, President,
Chief Executive Officer, Principal Executive
Officer, Principal Financial Officer
and Director


/s/Jon L. Clark                       Date:  March 10, 1998
Jon L. Clark, Vice President of Finance and
Principal Accounting Officer


/s/ Sarah L. Booher                   Date:  March 10, 1998
Sarah L. Booher, Director


/s/ David A. Lisowski                 Date:  March 10, 1998
David A. Lisowski, Director


/s/ Anthony B. Petrelli               Date:  March 10, 1998
Anthony B. Petrelli, Director


                               EXHIBIT INDEX
                                     
Exhibit No.  Description                     Method of Filing


        10.19     Business Loan Agreement between
                  the Company and Bank One,
                  Colorado, N.A., dated August 13,
                  1997  with a maturity date of
                  August 13, 1998            Filed herewith
             electronically

        10.20     Business Loan Agreement between
                  the Company and Bank One,
                  Colorado, N.A., dated August 13,
                  1997  with a maturity date of
                  February 13, 2001             Filed herewith
             electronically

         23.1     Consent of Haugen, Springer
                  & Co. to the incorporation by
                  reference of their financial
                  statements in the Registrant's
                  Form S-8 Registration Statements
                  (No. 33-88666), (No. 33-81045) and
                  (No. 333-45137) and the Registrant's
                  Form S-3 Registration Statement
                  (No. 333-25173)                    Filed herewith
             electronically

         27       Financial Data Schedule       Filed herewith
             electronically