Variflex Fiscal Q3 Earning Up 18% on 8% Sales Gain

Variflex, Inc. reported an 18% increase in net income for the for the third fiscal quarter ended April 30, 2004 to $1.6 million, or 32 cents per diluted share, compared to net income of $1.3 million, or 29 cents per diluted share, for the third quarter of 2003. Net sales for the quarter grew 8.0% to $23.0 million from $21.3 million for the yer-ago quarter.

Net sales for the nine month period ended April 30, 2004 were $43.6 million compared to $43.8 million for the comparable period in the prior year, a decrease of $0.2 million or less than one percent. The Company also reported net income of $274,000 or $0.06 per diluted share, compared to net income of $680,000 or $0.15 per diluted share for the comparable period.

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


                             Nine Months Ended      Three Months Ended
                                 April 30                 April 30
                         ------------------------- -------------------
                                (unaudited)              (unaudited)
                                2004       2003         2004      2003
                         ------------------------- -------------------

Net sales                      $43,625    $43,785     $23,019 $21,303
Cost of goods sold              37,146     36,712      18,931  17,260
                         ------------------------- -------------------
Gross profit                     6,479      7,073       4,088   4,043
                         ------------------------- -------------------

Operating expenses:
   Selling and marketing         2,060      1,866       1,027     808
   General and
    administrative               4,183      4,109       1,455   1,409
                         ------------------------- -------------------
Total operating expenses         6,243      5,975       2,482   2,217
                         ------------------------- -------------------
 Income from operations            236      1,098       1,606   1,826
                         ------------------------- -------------------

Other income (expense):
   Interest expense                (51)       (62)        (17)    (22)
   Interest income and
    other                          134        149          34      39
                         ------------------------- -------------------
Total other income
 (expense)                          83         87          17      17
                         ------------------------- -------------------

Income before income
 taxes                             319      1,185       1,623   1,843
Provision for income
 taxes                              45        505          45     505
                         ------------------------- -------------------
Net income                        $274       $680      $1,578  $1,338
                         ========================= ===================


Net income per share of
 common stock:
   Basic                         $0.06      $0.15       $0.34   $0.29
                         ========================= ===================
   Diluted                       $0.06      $0.15       $0.32   $0.29