SOURCE: Varsity Group Inc.

August 14, 2007 16:30 ET

Varsity Group Inc. Reports Second Quarter Results

WASHINGTON, DC--(Marketwire - August 14, 2007) - Varsity Group Inc. (NASDAQ: VSTY) today reported financial results for the second quarter of 2007. Net revenue decreased 25.4%, or $0.5 million, to $1.5 million for the three months ended June 30, 2007. This revenue decrease included a decrease of $0.4 million for the uniform operations and a decrease of $0.1 million from discontinued product lines. Book revenue was unchanged from the prior year period. Pre-tax loss was $3.3 million, a 20% decrease from the pre-tax loss of $4.1 million recorded for the second quarter of 2006. Net loss was $3.4 million, or $0.18 per diluted share, for the three months ending June 30, 2007, compared to net loss of $2.4 million, or $0.14 per diluted share, for the three months ending June 30, 2006.

Non-GAAP operating loss in the second quarter of 2007 decreased 18% to $2.9 million, compared with $3.6 million in the same period last year. Non-GAAP operating figures exclude depreciation and amortization expense, interest income and expense, income taxes, and SFAS 123(R) stock-based compensation expense.

Varsity Group Chief Financial Officer, President and CEO Jim Craig commented, "While the second quarter is and has historically been insignificant in terms of revenue, many of the cost reduction measures implemented at year end 2006 improved our cost structure for the second quarter of 2007."

This press release includes certain non-GAAP financial measures that involve adjustments to GAAP figures. Varsity Group believes that these non-GAAP financial measures, when considered together with the GAAP figures, can enhance an overall understanding of Varsity Group's past performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for GAAP figures. A reconciliation of the non-GAAP to GAAP figures follows this press release.

A conference call is scheduled at 5:00 P.M. EDT today to discuss results. The participant dial-in number for the conference call is (800) 819-9193. The participant code is 4525879. This conference call will be recorded and available for replay from the Investors section of our website located at http://www.varsitygroup.com.

ABOUT VARSITY GROUP INC.

Varsity Group Inc. is an outsource solution provider to education institutions nationwide. Under the brands Varsity Books and Campus Outfitters, Varsity provides solutions that enable schools to focus on their core educational mission. Varsity Group's solutions include online textbook, school supply and full-service school uniform services.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Varsity Group's business that are not historical facts are "Forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2006.

                            VARSITY GROUP INC.
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                  (in thousands, except per share data)


                                    Three Months Ended   Six Months Ended
                                         June 30,            June 30,
                                    ------------------  ------------------
                                      2007      2006      2007      2006
                                    --------  --------  --------  --------
Net sales:
     Textbooks                      $    667  $    688  $  1,884  $  2,155
     Uniforms                            714     1,089     1,222     1,610
     Solutions                            --        91        --        91
     Shipping                             73        83       263       315
                                    --------  --------  --------  --------
         Total net sales               1,454     1,951     3,369     4,171
                                    --------  --------  --------  --------

Operating expenses:
     Cost of textbooks                   291       394     1,096     1,507
     Cost of uniforms                    435       508       680       732
     Cost of solutions                    --        36        --        36
     Cost of shipping                     94       130       347       381
     Sales and marketing               1,987     2,313     3,520     3,554
     General and administrative        1,964     2,586     3,759     4,090
     Amortization of acquired
      intangibles                         --        58        --        97
                                    --------  --------  --------  --------
         Total operating expenses      4,771     6,025     9,402    10,397
                                    --------  --------  --------  --------

Loss from operations                  (3,317)   (4,074)   (6,033)   (6,226)
                                    --------  --------  --------  --------

Other (expense) income, net:
     Interest (expense) income, net      (59)      100       (46)      218
     Other income (expense), net          17        (1)      (39)       --
                                    --------  --------  --------  --------
     Other (expense) income, net         (42)       99       (85)      218
                                    --------  --------  --------  --------

Loss before income taxes              (3,359)   (3,975)   (6,118)   (6,008)

Income tax (expense) benefit             (13)    1,584       (15)    2,457
                                    --------  --------  --------  --------

Net loss                            $ (3,372) $ (2,391) $ (6,133) $ (3,551)
                                    ========  ========  ========  ========

Net loss per share:
     Basic and Diluted              $  (0.18) $  (0.14) $  (0.33) $  (0.20)
                                    ========  ========  ========  ========

Weighted average shares:
     Basic and diluted                18,657    17,526    18,541    17,337
                                    ========  ========  ========  ========




                            VARSITY GROUP INC.
             CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                              (in thousands)


                                                  June 30,    December 31,
                                                    2007          2006
                                                ------------  ------------
ASSETS
Current Assets:
     Cash and cash equivalents                  $         69  $        436
     Restricted cash                                   2,027            --
     Short-term investments                               --         2,498
     Accounts receivable, net of allowance for
      doubtful accounts of $215 at June 30,
      2007 and $203 at December 31, 2006,
      respectively                                       594         1,673
     Inventory                                        12,044         8,636
     Other                                               827         2,532
                                                ------------  ------------
           Total current assets                       15,561        15,775
                                                ------------  ------------

Property, plant and equipment, net of
 depreciation                                            786         1,156
Software developed for internal use, net of
 amortization                                          2,259         2,090
Intangible assets, net of amortization                     6             8
Goodwill                                                 511           511
Long-term investments                                     --         3,949
Other assets                                             161           159
                                                ------------  ------------
          Total assets                                19,284  $     23,648
                                                ============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Accounts payable                           $      5,040  $      2,384
     Line of Credit                                    4,734            --
     Margin Loan                                          --         4,205
     Other accrued expenses and other current
      liabilities                                        926         2,654
     Taxes payable                                        54            56
                                                ------------  ------------
          Total current liabilities                   10,754         9,299
Long-term liabilities:
     Other non-current liabilities                       152           157
                                                ------------  ------------
          Total liabilities                           10,906         9,456
                                                ------------  ------------

Commitments and contingencies
Stockholders' equity:
     Preferred stock:  $.0001 par value, 20,000
      shares authorized; 0 shares issued and
      outstanding at June 30, 2007 and December
      31, 2006, respectively                              --            --
     Common stock, $.0001 par value, 60,000
      shares authorized, 20,176 and 19,575
      shares issued and 18,961 and 18,360
      shares outstanding at June 30, 2007 and
      December 31, 2006, respectively                      2             2
     Additional paid-in capital                       91,037        90,721
     Accumulated unrealized loss on securities            --            (2)
     Accumulated deficit                             (80,928)      (74,796)
     Treasury stock, $.0001 par value, 1,215
      shares at June 30, 2007 and December 31,
      2006, respectively                              (1,733)       (1,733)
                                                ------------  ------------
     Total stockholders' equity                        8,378        14,192
                                                ------------  ------------
     Total liabilities and stockholders' equity $     19,284  $     23,648
                                                ============  ============




                            VARSITY GROUP INC.
        RECONCILIATION OF GAAP NET LOSS TO NON-GAAP OPERATING LOSS
                              (in thousands)


                                    Three months ended   Six months ended
                                         June 30,            June 30,
                                      2007      2006      2007      2006
                                    --------  --------  --------  --------

                                    --------  --------  --------  --------
      Net loss, as reported           (3,372)   (2,391)   (6,133)   (3,551)
                                    --------  --------  --------  --------
Adjustments:
  Depreciation and Amortization          264       334       532       518
  Interest expense (income)               59       (99)       46      (217)
  Income taxes (benefit)                  13    (1,584)       15    (2,457)
  SFAS 123(R) stock-based
   compensation                           96       148       192       197
                                    --------  --------  --------  --------
    Total Non-GAAP adjustments           432    (1,202)      785    (1,958)
                                    --------  --------  --------  --------
Non-GAAP operating loss (a)           (2,940)   (3,592)   (5,348)   (5,509)
                                    --------  --------  --------  --------


(a) Non-GAAP operating loss for this financial presentation represents net
    loss from continuing operations for the respective periods excluding
    depreciation and amortization expense, interest expense (income),
    income taxes (benefit) and SFAS 123(R) stock-based compensation.

    Management believes these non-GAAP financial measures, when considered
    together with the GAAP figures, can enhance an overall understanding
    of Varsity Group’s past performance. These non-GAAP financial measures
    are not intended to be considered in isolation or as a substitute for
    GAAP figures.

Contact Information

  • Contact:
    Jim Craig
    Chief Financial Officer
    President and CEO
    Email Contact
    202-349-1231