Variflex Fiscal Q2 Loss Widens on Lower Sales

Variflex, Inc. reported reported a net loss of $826,000 or ($0.18) per diluted share, for the second fiscal quarter ended January 31, 2004 on net sales of $8.5 million, compared to a net loss of $670,000, or ($0.15) per diluted share, on net sales of $9.9 million for the second quarter of the previous fiscal year.

For the six month period ended January 31, 2004, the Company reported a net loss of $1,304,000 or ($0.28) per diluted share, on net sales of $20.6 million, compared to a net loss of $659,000 or ($0.14), on net sales of $22.5 million for the comparable period.

Jay Losi, Variflex's Chief Executive Officer, stated, “Due to seasonality factors, the second fiscal quarter is generally the slowest for us, with the third and fourth quarters being the busiest. This seasonality has increased with the growing importance of our outdoor products category, which typically has its highest demand in the spring and early summer seasons. Revenues in the second quarter last year benefited significantly from initial orders for action sport products from large retailers. While we have maintained these accounts, we did not replicate the amount of revenue associated with initial orders. We currently have a large “backlog” and continue to be optimistic that revenues in the third and fourth fiscal quarters will grow as outdoor product category sales seasonally increase along with revenues from the sales of certain action sport and protective products utilizing the recently acquired `World Industries'(R) and `Shrek II'(R) licenses.”

Losi noted that the Company continues to maintain a strong balance sheet with $17.0 million in cash and cash equivalents, $28.4 million in working capital, and minimal long term debt.

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


                                 Six Months Ended   Three Months Ended
                                    January  31         January 31
                               ------------------- -------------------
                                     (unaudited)         (unaudited)
                                     2004    2003         2004   2003
                               ------------------- -------------------

Net sales                         $20,606 $22,482       $8,525 $9,880
Cost of goods sold                 18,214  19,452        7,509  8,740
                               ------------------- -------------------
Gross profit                        2,392   3,030        1,016  1,140
                               ------------------- -------------------

Operating expenses:
   Selling and marketing            1,033   1,058          513    454
   General and administrative       2,728   2,701        1,363  1,392
                               ------------------- -------------------
Total operating expenses            3,761   3,759        1,876  1,846
                               ------------------- -------------------
 Loss from operations              (1,369)   (729)        (860)  (706)
                               ------------------- -------------------

Other income (expense):
   Interest expense                   (34)    (40)         (17)   (20)
   Interest income and other           99     110           51     56
                               ------------------- -------------------
Total other income (expense)           65      70           34     36
                               ------------------- -------------------

Loss before income taxes           (1,304)   (659)        (826)  (670)
Provision for income taxes              0       0            0      0
                               ------------------- -------------------
Net loss                          ($1,304)  ($659)       ($826) ($670)
                               =================== ===================


Net loss per share of common
 stock:
   Basic                           ($0.28) ($0.14)      ($0.18)($0.15)
                               =================== ===================
   Diluted                         ($0.28) ($0.14)      ($0.18)($0.15)