<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549



                                   FORM 10-Q


               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934



For the Quarter Ended:                                  Commission File No.: 
   April 30, 1997                                             0-24338

                                VARIFLEX, INC.
            (Exact name of Registrant as specified in its charter)

        Delaware                                            95-3164466
(State or other jurisdiction of                    (IRS Employer Identification
incorporation or organization)                                Number)


                          5152 North Commerce Avenue
                          Moorpark, California 93021
                    (Address of principal executive offices)

              Registrant's telephone number, including area code:
                                (805) 523-0322

         -------------------------------------------------------------



Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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. Yes  X   No
                                      -----   -----

As of June 11, 1997, there were 6,025,397 shares of Common Stock, $.001 par
value, outstanding.
<PAGE>
 
                                VARIFLEX, INC.
                                     INDEX

<TABLE>
<CAPTION>

                                                                              Page No.
<S>                                                                            <C>
Part I  -  Financial Information

  Item 1.  Financial Statements

           Consolidated Balance Sheets                                           
           April 30, 1997 and July 31, 1996 .................................   3  
                                                                                   
           Consolidated Statements of Operations                                   
           Three Month and Nine Month Periods Ended April 30, 1997 and 1996..   4  
                                                                                   
           Consolidated Statements of Cash Flows                                   
           Nine Months Ended April 30, 1997 and 1996 ........................   5  
                                                                                   
           Notes to Consolidated Financial Statements .......................   6   

  Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations  .............................   7


Part II  - Other Information

  Item 6.  Exhibits and Reports on Form 8-K  ................................  11

</TABLE>

                                       2
<PAGE>
 
                                    PART I
                             FINANCIAL INFORMATION

Item 1.     Financial Statements
            --------------------

                                VARIFLEX, INC.
                          CONSOLIDATED BALANCE SHEETS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                       April 30,  July 31,
                                                                         1997       1996
                                                                      ---------- ----------
<S>                                                                      <C>       <C>   
ASSETS                                                               (Unaudited)
     Current assets:
 
         Cash and cash equivalents                                       $ 1,059   $ 3,351
         Short-term debt securities available for sale                     1,699        --
         Trade accounts receivable, less allowances of $514 and
             $555 as of April 30, 1997 and July 31, 1996, respectively    15,367    12,047
         Inventory (finished goods)                                        7,447    11,368
         Inventory (raw materials and work-in-process)                     1,693     1,964
         Deferred income taxes                                               785       752
         Prepaid expenses and other current assets                         2,743     3,457
                                                                         -------   -------
                      Total current assets                                30,793    32,939
     Property and equipment, net                                           2,017     2,432
     Long-term debt securities available for sale                         15,012    13,261
     Other assets                                                            646       773
                                                                         -------   -------
     Total assets                                                        $48,468   $49,405
                                                                         =======   =======

LIABILITIES AND STOCKHOLDERS' EQUITY
     Current liabilities:
         Trade acceptances payable                                       $ 1,062   $    88
         Accounts payable                                                    222       420
         Accrued warranty                                                    784       650
         Accrued salaries and related liabilities                            354       251
         Accrued co-op advertising                                         1,733     2,463
         Accrued returns and allowances                                      216       350
         Other accrued expenses                                              275       303
         Current portion of capital leases                                    27        27
                                                                         -------   -------
                      Total current liabilities                            4,673     4,552
     Capital leases                                                           22        41
     Commitments and contingencies
     Stockholders' equity:
         Preferred stock, $.001 par value, 5,000,000 shares
             authorized, none issued and outstanding                          --        --
         Common stock, $.001 par value, 40,000,000 shares
             authorized, 6,025,397 issued and outstanding as
             of April 30, 1997 and July 31, 1996                               9         9
         Additional paid-in capital                                       21,023    21,023
         Retained earnings                                                22,741    23,780
                                                                         -------   -------
     Total stockholders' equity                                           43,773    44,812
                                                                         -------   -------
     Total liabilities and stockholders' equity                          $48,468   $49,405
                                                                         =======   =======

</TABLE>
                             See accompanying notes.

                                       3
<PAGE>
 
                                   VARIFLEX, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>


                                                    Nine months ended       Three months ended
                                                         April 30,               April 30,
                                                    --------------------    --------------------
                                                      1997        1996        1997       1996
                                                    --------    --------    --------    --------
<S>                                                 <C>         <C>         <C>         <C>     
Net sales                                            $40,688     $59,514     $14,567     $21,707
Cost of goods sold                                    34,652      47,646      12,841      17,410
                                                    --------    --------    --------    --------
Gross profit                                           6,036      11,868       1,726       4,297
                                                    --------    --------    --------    --------
Operating expenses:
       Selling and marketing                           4,995       5,900       1,668       2,151
       General and administrative                      3,369       3,730         930       1,216
                                                    --------    --------    --------    --------
Total operating expenses                               8,364       9,630       2,598       3,367
                                                    --------    --------    --------    --------
Income (loss) from operations                         (2,328)      2,238        (872)        930
                                                    --------    --------    --------    --------
Other income (expense):
       Interest expense                                  (38)        (92)        (16)         (2)
       Interest income and other                         685         548         240         182
                                                    --------    --------    --------    --------
Total other income (expense)                             647         456         224         180
                                                    --------    --------    --------    --------
Income (loss) before provision for income taxes       (1,681)      2,694        (648)      1,110
(Benefit from) provision for income taxes               (772)        941        (268)        403
                                                    --------    --------    --------    --------
Net income (loss)                                    $  (909)    $ 1,753     $  (380)    $   707
                                                    ========    ========    ========    ========


Earnings (loss) per share of common stock:

Net income (loss) per share                          $ (0.15)    $  0.29     $ (0.06)    $  0.12
                                                    ========    ========    ========    ========

Weighted average number of common shares
  outstanding, including common share equivalents      6,041       6,039       6,041       6,039
                                                    ========    ========    ========    ========

</TABLE>

                            See accompanying notes.
          

                                       4
<PAGE>
 
                                 VARIFLEX, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                Nine months ended
                                                                    April 30,
                                                                1997        1996
                                                              --------    --------
<S>                                                           <C>         <C>     
OPERATING ACTIVITIES
Net income (loss)                                              $  (909)   $  1,753
Adjustments to reconcile net income to net cash provided by
  (used in) operating activities:
    Depreciation and amortization                                1,116       1,314
    Deferred income taxes                                          (33)        (28)
    Changes in operating assets and liabilities:
        Trade accounts receivable                               (3,320)       (661)
        Inventory                                                4,192      (2,034)
        Prepaid expenses and other current assets                  714        (804)
        Trade acceptances payable                                  974          43
        Accounts payable                                          (198)        509
        Other current liabilities                                 (655)     (1,474)
                                                              --------    --------
Net cash provided by (used in) operating activities              1,881      (1,382)
                                                              --------    --------

INVESTING ACTIVITIES
Purchases of property and equipment                               (559)     (2,274)
Purchases of available-for-sale securities                      (3,722)    (11,985)
Net proceeds from sales of available-for-sale securities            --      10,200
Other assets                                                       127         123
                                                              --------    --------
Net cash used in investing activities                           (4,154)     (3,936)
                                                              --------    --------

FINANCING ACTIVITIES
Long-term obligations, net                                         (19)        (49)
                                                              --------    --------
Net cash used in financing activities                              (19)        (49)
                                                              --------    --------

Net decrease in cash                                            (2,292)     (5,367)
Cash at beginning of period                                      3,351       6,617
                                                              --------    --------
Cash at end of period                                          $ 1,059    $  1,250
                                                              ========    ========


Cash paid during the period for:
   Interest                                                    $    39    $     83
   Income taxes                                                     --    $  1,545

</TABLE>

                            See accompanying notes.

                                       5
<PAGE>
 
                                VARIFLEX, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)




NOTE 1.

         The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month and nine month periods
ended April 30, 1997 are not necessarily indicative of the results that may be
expected for the full fiscal year. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended July 31, 1996.



NOTE 2.

         In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is to be adopted on December 31,
1997, requiring a change in the method currently used to compute earnings per
share and restatement of all prior periods. The impact of Statement No. 128 on
the calculation of the Company's earnings per share, both primary and fully
diluted, for the three and nine month periods ended April 30, 1997 and 1996, is
not expected to be material.

                                       6
<PAGE>
 
Statements in this Quarterly Report on Form 10-Q under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations", as
well as oral statements that may be made by the Company or by officers,
directors or employees of the Company acting on the Company's behalf, that are
not historical fact constitute "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
involve risks and uncertainties, including, but not limited to: the risk of
reduction in consumer demand for the product categories in which the Company
does business or for the Company's products in particular; the risk that the
Company may not continue to expand and diversify its business and product lines;
the risk of loss of one or more of the Company's major customers; the risk that
the Company may not be able to continue to provide its products at prices which
are competitive or that it can continue to design and market products that
appeal to consumers even if price competitive; and, the risk that the Company
may not be able to obtain its products and supplies on substantially similar
terms, including cost. In addition, the Company's business, operations and
financial condition are subject to risks which are described in the Company's
reports and statements filed from time to time with the Securities and Exchange
Commission, including this Report.


Item 2.     Management's Discussion and Analysis of Financial Condition and 
            ---------------------------------------------------------------
            Results of Operations
            ---------------------

         RESULTS OF OPERATIONS
         ---------------------

         NET SALES. Net sales for the third quarter of fiscal 1997 (the quarter
         ---------
ended April 30, 1997) totaled $14,567,000, representing a decrease of
$7,140,000, or 33%, from net sales for the third quarter of fiscal 1996.
Decreases in sales volume and average selling prices with respect to the
Company's in-line skate and skateboard categories were the principal factors
leading to the decline in total net sales.

         With respect to in-line skates, gross sales for the third quarter of
fiscal 1997 totaled $10,542,000, a decrease of $5,656,000, or 35%, compared to
the third quarter of fiscal 1996, while unit volume decreased by approximately
161,000 units, or 21%. These decreases are primarily the result of excess
inventory at the retail level and continuing downward pressure on prices due to
competitive influences within the category. Also, during the quarter the Company
continued an aggressive campaign to close-out certain skate models and reduce
the associated inventory carrying costs. The average selling price (gross
revenues divided by units sold) of the Company's in-line skates during the third
quarter of fiscal 1997 was $17.56, compared to $21.28 for third quarter of the
prior year, due to price discounts and other factors discussed above and a
general shift in the mix of sales toward lower priced models.

         Gross sales of skateboards totaled $2,533,000 during the third quarter
of fiscal 1997, a decrease of $852,000, or 25%, compared to the third quarter of
fiscal 1996, while unit volume decreased by approximately 46,000 units, or 19%.
During the corresponding quarter of the prior year, the resurgence in the
popularity of and demand for skateboards was in its initial stages. Demand is
slightly less at present when compared to a year ago as there is now more
inventory available at retail and a greater proportion of the Company's
shipments represent customer re-orders. The decrease in unit volume was less
than the decrease in revenues due to a shift in the mix of the Company's sales
toward lower priced skateboard models.

                                       7
<PAGE>
 
         Gross sales of athletic protective equipment totaled $676,000 during
the third quarter of fiscal 1997, a decrease of $549,000, or 45%, compared to
the third quarter of fiscal 1996, while unit volume decreased approximately
87,000, or 39%. The Company's protective equipment sales generally follow trends
in the in-line skate category. As with in-line skates, these decreases in
protective equipment sales are primarily the result of excess inventory at the
retail level. The decrease in gross sales was greater than the decrease in unit
volume due to a lesser proportion of sales of "triple-packs" and other multiple
unit packages in the third quarter of fiscal 1997 compared to the corresponding
period of the prior year.

         Gross sales of bicycle and recreational safety helmets totaled $805,000
during the third quarter of fiscal 1997, a decrease of $315,000, or 28%,
compared to the third quarter of fiscal 1996, while unit volume decreased by
approximately 38,000 units, or 24%. These decreases are primarily due to higher
inventories of these products at certain of the Company's major customers and
excess supply of helmets in the marketplace in general. The year-over-year
decrease in gross sales is greater as a percentage than the decrease in unit
volume due to discounting and other price reductions in response to competitive
pressures in the helmet market. Competitive influences and high inventory levels
continue to put downward pressure on retail and wholesale prices throughout the
industry.

         Gross sales of snowboards, snowboard bindings and other snowboarding
accessories during the third quarter of fiscal 1997 totaled $127,000. The
Company manufactures and markets its snowboards and related products under the
Static(TM) and Barfoot(TM) brands. The prime selling season for such products is
typically the fall and winter.

         For the nine months ended April 30, 1997, net sales totaled
$40,688,000, representing a decrease of $18,826,000, or 32%, compared to the
corresponding period of the prior year. Total gross sales dollars in the
Company's in-line skate, athletic protective equipment, and bicycle and
recreational safety helmet categories decreased approximately 37%, 56% and 42%,
respectively, while gross sales of skateboards increased approximately 23%.
Gross sales of snowboards, snowboard bindings and other snowboarding accessories
during the nine months ended April 30, 1997 contributed $1,402,000 in revenues.

         The following table shows the Company's major product categories as a
percentage of total gross sales:
<TABLE>
<CAPTION>

                                             Quarter Ended April 30,         Nine Months Ended April 30,
                                                  1997     1996                   1997      1996
                                                  ----     ----                   ----      ----
<S>                                                <C>      <C>                    <C>       <C>
In-line skates                                     71%      74%                    69%       76%
Athletic protective equipment                       5%       6%                     5%        8%
Bicycle and recreational safety helmets             5%       5%                     5%        6%
Skateboards                                        17%      15%                    17%       10%
Snowboards and accessories                          1%      (*)                     3%       (*)
Other                                               1%      (*)                     1%       (*)
                                                  ----     ----                   ----      ----
                                                                                               
     Total                                        100%     100%                   100%      100%
                                                  ====     ====                   ====      ====
</TABLE>

(*)  Less than one-half of one percent

                                       8
<PAGE>
 
         Sales to the Company's four largest accounts represented approximately
78% of the Company's total sales during the third quarter of fiscal 1997,
compared with 77% during the third quarter of fiscal 1996.

         GROSS PROFIT. The Company's gross margin as a percentage of net sales
         ------------
was 11.8% for the quarter ended April 30, 1997, compared to 19.8% for the
quarter ended April 30, 1996, and was 14.8% for the nine months ended April 30,
1997, compared to 19.9% for the nine months ended January 31, 1996. The decrease
in gross margin is the result of several factors, particularly the impact of
price discounts offered in connection with the close-out of certain models of
in-line skates, as well as general downward pressure on sales prices in the
in-line skate and bicycle safety helmet categories in response to competitive
pressures in the marketplace. There can be no assurance that the Company can
continue to obtain its products from suppliers at sufficiently low costs to
fully offset the downward pressure on sales prices and improve or sustain
present gross profit margins.

         OPERATING EXPENSES. The Company's operating expenses (consisting of
         ------------------
selling and marketing expenses and general and administrative expenses) for the
third quarter of fiscal 1997 totaled $2,598,000, or 17.8% of net sales, compared
to $3,367,000, or 15.5% of net sales, for the third quarter of fiscal 1996. For
the nine months ended April 30, 1997, operating expenses totaled $8,364,000, or
20.6% of net sales, compared to $9,630,000, or 16.2% of net sales, for the nine
months ended April 30, 1996.

         Selling and marketing expenses decreased $483,000, or 22%, to
$1,668,000 for the third quarter of fiscal 1997, compared to $2,151,000 for the
third quarter of fiscal 1996. Thus, selling and marketing expenses represented
11.5% of net sales during the third quarter of fiscal 1997, compared to 9.9% in
the same quarter of the prior year. For the nine months ended April 30, 1997,
selling and marketing expenses amounted to 12.3% of net sales, compared to 9.9%
for the nine months ended April 30, 1996. The decrease in selling and marketing
expenses is primarily due to lower sales commissions and co-op advertising costs
as a result of lower revenues. The increase as a percentage of net sales is due
to certain categories of expenses not directly related to sales volume, such as
salaries and wages and trade show and certain other promotional expenses,
representing a higher percentage because of lower net sales.

         General and administrative expenses decreased $286,000, or 24%, to
$930,000 for the third quarter of fiscal 1997, compared to $1,216,000 for the
third quarter of fiscal 1996. Thus, general and administrative expenses
represented 6.4% of net sales during the third quarter of fiscal 1997, compared
to 5.6% in the same quarter of the prior year. For the nine months ended April
30, 1997, general and administrative expenses amounted to $3,369,000, or 8.3% of
net sales, a decrease of $361,000, or 10%, compared to $3,730,000, or 6.3% of
net sales, for the nine months ended April 30, 1996. The decrease in general and
administrative expenses is primarily due to decreases in accruals for deferred
compensation and decreases in legal fees and other professional expenses.

         OTHER INCOME (EXPENSE). Other income for the third quarter of fiscal
         ----------------------
1997 was $224,000, compared to $180,000 during the third quarter of fiscal 1996.
For the nine months ended April 30, 1997, other income was $647,000, compared to
$456,000 for the corresponding period of the prior year. These increases are
primarily due to increases in interest income as a result of higher balances of
cash and marketable security investments compared to the prior year.

                                       9
<PAGE>
 
         (BENEFIT FROM) PROVISION FOR INCOME TAXES. For the third quarter of
         -----------------------------------------
fiscal 1997, the Company's benefit from income taxes was $(268,000), or (41.4%)
of loss before income taxes, reflecting the federal tax benefit, net of
applicable state taxes, associated with the results of operations for the
quarter, compared to a provision for income taxes of $403,000, or 36.3% of
income before income taxes, for the third quarter of fiscal 1996. For the nine
months ended April 30, 1997, the benefit from income taxes was (45.9%) of loss
before income taxes, compared to a provision for income taxes of 34.9% of income
before income taxes for the comparable period of the prior year. The Company's
effective tax rates differ from the federal statutory rate primarily due to tax
exempt interest income included in pre-tax income or loss.


         LIQUIDITY AND CAPITAL RESOURCES
         -------------------------------

         On February 1, 1997, the Company entered into a new credit agreement
with a major bank providing a $12 million revolving line of credit, with
separate sublimits of $12 million for the issuance of commercial letters of
credit and $2 million for actual borrowings. The agreement, which expires
February 1, 1998, is unsecured and carries an interest rate equal to prime minus
0.25%, and also offers certain Libor-based interest options. The agreement
requires that the Company satisfy certain financial covenants. Over the past
several years, borrowings have varied, typically reaching highest levels in the
pre-Christmas periods. However, more recently the Company has borrowed against
its line of credit less frequently due to the ability to finance operations
internally from cash and marketable securities available for sale. Balances on
the line of credit are classified as current liabilities on the Company's
balance sheet. There was no balance outstanding under the revolving line of
credit as of April 30, 1997, and no balance outstanding as well as of July 31,
1996.

         The Company had cash of $1,059,000 on hand as of April 30, 1997,
compared to $3,351,000 as of July 31, 1996. Cash and marketable securities
available for sale totaled $17,770,000 as of April 30, 1997, compared to
$16,612,000 as of July 31, 1996. Net working capital as of April 30, 1997 was
$26,120,000, compared to $28,387,000 as of July 31, 1996, and the Company's
current ratio was 6.6:1 as of April 30, 1997, compared to 7.2:1 as of July 31,
1996. The decreases in working capital and current ratio are primarily due to
cash generated from operations, particularly via reductions in inventory, that
was invested in long-term marketable securities.

         The Company had long-term debt of $22,000 as of April 30, 1997,
compared to $41,000 as of July 31, 1996. These balances represent the long-term
portion of capital leases for vehicles and equipment. The Company had net
stockholders' equity of $43,773,000 as of April 30, 1997, compared to
$44,812,000 as of July 31, 1996. This decrease is due primarily to operating
results for the nine months ended April 30, 1997, and fluctuations in unrealized
gains and losses on marketable securities investments.

         Capital expenditures for the nine months ended April 30, 1997 totaled
$559,000, compared to $2,274,000 for the same period of the prior year. The
decrease is primarily due to equipment purchases that were made in the prior
year in connection with the construction of the Company's new snowboard
manufacturing facility.

                                       10
<PAGE>
 
                                     PART II
                                OTHER INFORMATION





Item 6.    Exhibits and Reports on Form 8-K

                  (a)  Exhibits.
                       --------

                       Exhibit 27    Financial Data Schedule


                  (b)  Reports on Form 8-K.
                       -------------------
                       No reports on Form 8-K were filed by the Registrant 
                       during the quarter to which this Form 10-Q relates.

                                       11
<PAGE>
 
                                  SIGNATURES
                                  ----------

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.


                                 VARIFLEX, INC.




June 12, 1997                    /s/  Raymond H. Losi II
                                 -----------------------
                                      Raymond H. Losi II
                                      President (Principal Executive Officer)



June 12, 1997                    /s/  William B. Ogden
                                 ---------------------
                                      William B. Ogden
                                      Chief Financial Officer (Principal 
                                      Financial and Accounting Officer)

                                       12