PR: Variflex Narrows Loss in First Quarter; Sees Stronger Sales in Moorpark, CA.
(December 4, 1996)

Variflex, Inc. (Nasdaq: VFLX) today reported a loss for the first quarter ended October 31, 1996 of ($261,000), or ($0.04) per share, on sales of $12,277,000, compared with net income in the comparable period a year ago of $937,000, or $0.16 per share, on sales of $23,525,000.

The Company significantly narrowed its loss from the previous quarter when it reported a net loss of ($1,189,000), or ($0.20) per share, on net sales of $12,865,000. Variflex closed the quarter with $21.7 million in cash and a book value of $7.39 per share.

The company attributed the first quarter loss primarily to a $160,000 write off taken as a result of the liquidation of Best Products and to returns of products as a result of high inventory levels at retail outlets.

Jay Losi, President and Chief Operating Officer, said "While the quarter has been challenging, it was not unanticipated. Our quarter-to-quarter loss from the fourth period was narrowed by more than 70 percent. More importantly, we continue to believe that the current year will be profitable.

"Despite the loss in the first quarter, we did sell nearly 420,000 pairs of in-line skates. Although this category isn't growing as it did a few years ago, it remains a very strong part of our business and we expect it to continue as our core. Additionally, we sold approximately 200,000 skateboards during the quarter, reconfirming our leadership position in this segment of the market.

"October was a landmark month for Variflex and its new Static Snowboard manufacturing facility in Huntington Beach, California. The company had sharply increased snowboard sales and October was strongest sales month for this category since we opened the factory a year ago. During October, sales of Static and Barfoot snowboards and accessories contributed a total of nearly $500,000 in revenues.

"That momentum in snowboards carried into November. Given the strength of snowboard sales and production in these two months, we feel that the snowboard factory has worked out the ramp up bugs inherent to any new manufacturing facility and is fully onstream and that our marketing strategy is on target for this category."

Mr. Losi pointed out that "Our confidence for the full year was bolstered by sales activity for other Variflex products in November, as well. Overall, sales during the month were relatively strong and were considerably higher than a year ago. Consequently, while we cannot make a firm projection, we expect sales to be higher in the current quarter.

"This confidence is based on our skateboard sales during the month, which remained strong; sales of in-line skates, which continued their current pace, as well the strength of snowboard sales. With respect to in-line skates, our opening order to Wal-Mart was shipped on time during the month and we've heard that sales have been brisk."

Looking toward the future, Mr. Losi said "Variflex has built its reputation on new products and before the end of 1996 we plan to introduce one that we believe could be very strong over time. And, early next year, we expect to announce another new and exciting product that we believe is patentable.

"Overall, Variflex will continue to play to our strengths: innovation, creativity and sourcing capability. It is these strengths that have built the company and we believe they will prevail, returning us to growth and profitability."

Variflex, Inc. is a leading supplier of in-line skates, skateboards, skating protective equipment and bicycle and recreational safety helmets to the mass market. Variflex's new Static(TM) brand of high quality action sports products, including in-line skates, snowboards and skateboards are high-performance, aggressively-priced, upscale products marketed to the sporting goods and specialty dealer markets.

NOTE: Any reference to the development of products, growth rates or the continued success of the company's current product offerings constitutes forward-looking information and actual future results may vary materially.There can be no assurance of the rate of growth of the industry or of thecompany, that the company's products will enjoy continued success or that any products in development will ever be commercially released or that, if released, such products will contribute revenues to the company sufficient to recoup or exceed their development cost. For a discussion of these and other factors that could affect Variflex's business and financial results, see information contained in the company's Forms 10-K and Forms 10-Q on file at the Securities and Exchange Commission.

Variflex, Inc.
Consolidated Statement of Income
(In thousands, except per share data)
Three months ended
October 31,
(unaudited)

                                       1995          1996
                                       ----          ----
Net sales                           $12,277        $23,525
Cost of goods sold                   10,207         18,622
Gross profit                          2,070          4,903
Operating expenses:
Selling and marketing                 1,612          2,274
General and administrative            1,223          1,309
Total operating expenses              2,835          3,583
Income (loss) from operations          (764)         1,320
Other income (expense):
Interest expense                         (4)           (21)
Interest income and other               248           182
Total other income                      244           161
Income (loss) before
   provision for income taxes          (520)        1,481
Income tax provision (benefit)         (259)          544
Net income (loss)                     ($261)         $937
Earnings (loss) per share
   of common stock:
Net income (loss) per share          ($0.04)        $0.16
   Weighted average numbers of
   common and common
   equivalent shares outstanding      6,041        6,039