Variflex Narrows Fiscal Q2 Loss on 46% Sales Jump

Variflex, Inc. reported net sales of $9.9 million for the second fiscal quarter ended January 31, 2003 compared to $6.8 million for the second quarter of 2002, an increase of $3.1 million or 46%, and also reported a net loss for the quarter of $670,000 or ($0.15) per diluted share, compared to a net loss of $1,494,000, or ($0.32) per diluted share for the second quarter of 2002.

Net sales for the six month period ended January 31, 2003 were $22.5 million compared to $16.5 million for the comparable period in the prior year, an increase of $6.0 million or 36%, and reported a net loss of $659,000 or ($0.14) per diluted share, compared to a net loss of $2,388,000 or ($0.52) per diluted share for the comparable period.

Mark S. Siegel, Variflex’s Chairman, stated, “We continued to see improvement in our performance as we achieved improved net sales and financial results for the fourth consecutive quarter as compared to the same quarters of the prior year. The second fiscal quarter increase in net sales of nearly $3.1 million or 46% was the result of significantly increased sales in both our action sport and outdoor product categories.”

The Company also announced that Nasdaq has approved the Company’s application to transfer its common stock from the Nasdaq National Market to the Nasdaq SmallCap Market, effective at the start of trading on Monday, March 10, 2003.

The Company does not meet the Nasdaq National Market requirements for the Marketplace Rule that requires the Company to maintain a minimum market value of publicly held shares (which do not include shares owned by affiliates) of $5,000,000 and have a minimum of 400 round lot shareholders, respectively. The Nasdaq SmallCap requires the Company maintain a minimum market value of publicly held shares (which do not include shares owned by affiliates) of $1,000,000 and maintain a minimum of 300 round lot shareholders.

                            VARIFLEX, INC.
                 CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except per share data)

                                Six Months Ended   Three Months Ended
                                  January 31          January 31
                              ----------------------------------------
                                  (unaudited)         (unaudited)
                                2003     2002       2003      2002
                              ----------------------------------------

Net sales                      $22,482   $16,506     $9,880    $6,767
Cost of goods sold              19,452    15,050      8,740     6,337
                              ----------------------------------------
Gross profit                     3,030     1,456      1,140       430
                              ----------------------------------------

Operating expenses:
   Selling and marketing         1,058       997        454       492
   General and administrative    2,701     3,044      1,392     1,513
                              ----------------------------------------
Total operating expenses         3,759     4,041      1,846     2,005
                              ----------------------------------------
 Loss from operations             (729)   (2,585)      (706)   (1,575)
                              ----------------------------------------

Other income (expense):
   Interest expense                (40)      (46)       (20)      (23)
   Interest income and other       110       243         56       104
                              ----------------------------------------
Total other income (expense)        70       197         36        81
                              ----------------------------------------

Loss before income taxes          (659)   (2,388)      (670)   (1,494)
Provision for income taxes           0         0          0         0
                              ----------------------------------------
Net loss                         ($659)  ($2,388)     ($670)  ($1,494)