SOURCE: Varsity Group, Inc.

August 15, 2005 17:37 ET

Varsity Group Reports Second Quarter Financial Results and Projects Record Revenues

WASHINGTON, DC -- (MARKET WIRE) -- August 15, 2005 -- Varsity Group Inc. (NASDAQ: VSTY) today reported its results for the second quarter of 2005. Total revenues for the second quarter were $1.7 million, compared to $1.1 million for the same period in 2004, an increase of 57%. Revenues were positively impacted by the Company's acquisition of Campus Outfitters in May 2005.

For its second quarter of 2005, the Company reported a net loss of $815,000, or $0.05 per basic and diluted share, compared to a net income of $519,000, or $0.03 per basic and diluted share, in the second quarter of 2004. The Company's reported net income for its second quarter 2004 was positively impacted by a reduction in a portion of its deferred tax asset valuation allowance, which resulted in an income tax benefit for the quarter. The Company did not take a reduction in its deferred tax asset valuation allowance in the current quarter.

"While the seasonality of our business has historically translated into operating losses for the first half of the year, we have laid the foundation during this period for another outstanding year. With the continued growth of our eduPartners network and addition of Campus Outfitters, we believe we are poised to deliver record revenues in fiscal 2005," commented Eric Kuhn, Chairman and Chief Executive Officer of Varsity Group Inc. "We are very pleased with the integration of Campus Outfitters and our continued progress toward delivering exceptional service to our customers for the current back-to-school selling season. As we look to the future, we believe that we are well positioned to extend our leadership position in the online bookstore industry and grow our recently acquired uniform business."

ABOUT VARSITY GROUP INC.

Varsity Group Inc. is a leading provider of online bookstore solutions for educational institutions, and through its Campus Outfitters subsidiary, is a leading provider of uniform needs for private schools. Varsity Group's eduPartners program offers educational institutions a comprehensive eCommerce solution for their textbook procurement operations. Varsity Group today comprises a nationwide network of hundreds of educational institutions that have chosen to outsource their bookstore or uniform operations through its innovative and convenient outsource model.

"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 fiscal year ended December 31, 2004.

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


                             Three Months Ended    Six Months Ended
                                 June 30,               June 30,


                               2005     2004        2005       2004
                             -------   -------    -------    -------
Net sales:
     Textbook                $ 1,100   $ 1,033    $ 3,246    $ 2,692
     Uniform                     547        --        547         --
     Shipping                     80        64        278        232
                             -------   -------    -------    -------
         Total net
          sales                1,727     1,097      4,071      2,924
                             -------   -------    -------    -------

Operating expenses:
     Cost of textbooks           680       633      2,116      1,832
     Cost of uniform             219        --        219         --
     Cost of shipping             62        49        223        186
     Sales and marketing       1,242       698      2,092      1,250
     Product development          96        35        225         60
     General and
      administrative             838       501      1,567      1,025
     Amortization                 12        --         12         --
     Non-cash stock
      compensation                --         9         --         31
                             -------   -------    -------    -------
         Total operating
          expenses             3,149     1,925      6,454      4,384
                             -------   -------    -------    -------

Loss from operations          (1,422)     (828)    (2,383)    (1,460)
                             -------   -------    -------    -------

Other income, net:
     Interest income
      (expense), net             122        54        265        114
     Other income
      (expense), net             (14)       (9)        (6)        (9)
                             -------   -------    -------    -------
     Other income, net           108        45        259        105
                             -------   -------    -------    -------

Loss before
 income taxes                 (1,314)     (783)    (2,124)    (1,355)

Income tax benefit               499     1,302        807      1,524
                             -------   -------    -------    -------

Net (loss) income           $   (815)   $  519   $ (1,317)    $  169
                             =======   =======    =======    =======

Net (loss) income per
   share:
     Basic                  $ (0.05)    $ 0.03   $ (0.08)     $ 0.01
                             =======   =======    =======    =======
     Diluted                $ (0.05)    $ 0.03   $ (0.08)     $ 0.01
                             =======   =======    =======    =======

Weighted average
   shares:
     Basic                    16,862    16,716     16,816     16,673
                             =======   =======    =======    =======
     Diluted                  16,862    17,721     16,816     17,889
                             =======   =======    =======    =======


(1) The Company accounts for income taxes in accordance with Statement of
 Financial Accounting Standards No. 109, (“SFAS 109”) “Accounting for
 Income Taxes.” Under SFAS No. 109, deferred tax assets and liabilities
 are determined based on differences between the financial reporting and
 tax basis of assets and liabilities and are measured using the enacted
 tax rates and laws that will be in effect when the differences are
 expected to reverse. A deferred tax benefit is recorded during interim
 periods when we have an expectation of earnings for the annual period.
 A valuation allowance is established when necessary to reduce deferred
 tax assets to the amount expected to be realized. In determining the
 need for a valuation allowance, management reviews both positive and
 negative evidence pursuant to the requirements of SFAS No. 109,
 including current and historical results of operations, the annual
 limitation on utilization of net operating loss carry forwards pursuant
 to Internal Revenue Code section 382, future income projections and the
 overall prospects of our business.  Accordingly, the Company released a
 portion of its deferred tax asset valuation allowance during its second
 quarter of fiscal 2004 which resulted in an income tax benefit for the
 three and six months ended June 30, 2004.


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

                                                June 30,     December 31,
                                                  2005          2004
                                              ------------   ------------
Assets
Current Assets:
     Cash and cash equivalents                $      3,345   $      4,865
     Short-term investments                          2,000          7,000
     Accounts receivable, net of allowance
      for doubtful accounts of $20 at
      June 30, 2005 and $15 at December 31,
      2004, respectively                               846          1,251
     Inventory                                      11,262          2,463
     Other                                             371          1,248
                                              ------------   ------------
         Total current assets                       17,824         16,827

Property, plant and equipment, net of
 depreciation                                          533            252
Software developed for internal use, net
 of amortization                                     1,017            708
Intangible assets, net of amortization                 838              -
Goodwill                                             2,368              -
Deferred income taxes                                6,708          5,901
Long term investments                                6,454          6,993
Other assets                                           119             31
                                              ------------   ------------
         Total assets                               35,861         30,712
                                              ============   ============

Liabilities and Stockholders' Equity
Current Liabilities:
     Accounts payable                         $      6,956   $        696
     Other accrued expenses and other current
      liabilities                                      948          1,569
     Taxes payable                                     446            459
                                              ------------   ------------
         Total current liabilities                   8,350          2,724
Long-term liabilities
     Other non current liabilities                      19              -
                                              ------------   ------------
         Total liabilities                           8,369          2,724
                                              ------------   ------------
Commitments and contingencies
Stockholders' equity
     Preferred stock: $.0001 par value,
      20,000 shares authorized; 0 shares
      issued and outstanding at June 30, 2005
      and December 31, 2004, respectively                -              -
     Common stock, $.0001 par value, 60,000
      shares authorized, 18,240 and 17,969
      shares issued and 17,025 and 16,754
      shares outstanding at June 30, 2005
      and December 31, 2004, respectively                2              2
     Additional paid-in capital                     89,133         88,273
     Unrealized loss                                   (46)            (7)
     Accumulated deficit                           (59,864)       (58,547)
     Treasury stock, $.001 par value, 1,215
      shares at June 30, 2005 and
      December 31, 2004, respectively               (1,733)        (1,733)
     Total stockholders' equity                     27,492         27,988
                                              ------------   ------------
     Total liabilities and stockholders'
      equity                                  $     35,861   $     30,712
                                              ============   ============

Contact Information

  • Contact: Jack Benson
    Company: Varsity Group Inc.
    Title: Chief Financial Officer
    Voice: 202-667-3400
    URL: http://varsity-group.com