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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-Q

(MARK ONE)

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|    |  |                                                                                        
|    |  | For the quarterly period ended September 30, 2003                                      

OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|      |  |                                                                                         
|      |  | For the transition period from ________to________.                                      



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Commission file number 0-28977



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VARSITY GROUP INC.

(Exact Name of Registrant as Specified in Its Charter)


|                                |  |                             
|------------------------------- |  | ----------------------------
|Delaware                        |  | 54-1876848                  
|(State of Incorporation)        |  | IRS Employer (Identification
|                                |  | Number)                     
|1850 M Street, Suite 1150       |  | 20036                       
|Washington, D.C.                |  | (Zip Code)                  
|(Address of Principal Executive |  |                             
|Offices)                        |  |                             

Registrants telephone number, including area code: (202) 667-3400

(Former Name, Former Address and Former Fiscal Year, if Changed, Since Last Report.)

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 [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)  Yes [  ]
  No [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [  ]  No [  ]

As of October 31, 2003, the registrant had 16,567,408 shares of common
stock outstanding.



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Page 1



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VARSITY GROUP INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q
For the quarter ended September 30, 2003

INDEX

|        |  |                                                                                                                 |  |            
|------- |  | --------------------------------------------------------------------------------------------------------------- |  | -----------
|        |  |                                                                                                                 |  | Page Number
|        |  |                                                                                                                 |  |            
|        |  | PART I. FINANCIAL INFORMATION                                                                                   |  |            
|Item 1. |  | Financial Statements                                                                                            |  |            
|        |  | Condensed consolidated statements of operations for the
three and nine months ended September 30, 2002 and 2003 |  | 3          
|        |  | Condensed consolidated balance sheets as of December 31,
2002 and September 30, 2003                            |  | 4          
|        |  | Condensed consolidated statements of cash flows for the
nine months ended September 30, 2002 and 2003           |  | 5          
|        |  | Notes to condensed consolidated financial statements                                                            |  | 6          
|Item 2. |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations                           |  | 7          
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 11         
|        |  | PART II. OTHER INFORMATION                                                                                      |  |            
|Item 1. |  | Legal Proceedings                                                                                               |  | 12         
|Item 2. |  | Changes in Securities                                                                                           |  | 12         
|Item 3. |  | Defaults Upon Senior Securities                                                                                 |  | 12         
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                                             |  | 12         
|Item 5. |  | Other Information                                                                                               |  | 12         
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                |  | 12         

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PART I.
FINANCIAL INFORMATION

Item 1:Financial Statements

VARSITY GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)

|                         |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |            |        | 
|------------------------ | -------------------------- | ------------------------ | ----- | ------------------ | ------ | ----------------- | ----- | ---------- | ------ | ---- | ----- | ---------- | ------ | - | ----- | ---------- | ------ | 
|                         |                            |                          |       | Three Months Ended |        | Nine Months Ended
|                         |                            |                          |       | September 30,      |        | September 30,    
|                         |                            |                          |       |                    |        |                  
|                         |                            |                          |       | 2002               |        | 2003              |       | 2002       |        | 2003
|                         |                            |                          |       |                    |        |                   |       |            |        |     
|Net sales:               |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           
|                         | Product                    |                          | $     | 13,291             |        |                   | $     | 19,628     |        |      | $     | 14,312     |        |   | $     | 21,149     |       
|                         | Shipping                   |                          |       | 1,091              |        |                   |       | 1,837      |        |      |       | 1,207      |        |   |       | 2,055      |       
|                         |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           
|                         |                            | Total net sales          |       |                    | 14,382 |                   |       |            | 21,465 |      |       |            | 15,519 |   |       |            | 23,204 | 
|                         |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           
|Operating expenses:      |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           
|                         | Cost of books              |                          |       | 9,037              |        |                   |       | 13,274     |        |      |       | 9,726      |        |   |       | 14,337     |       
|                         | Cost of shipping           |                          |       | 812                |        |                   |       | 1,147      |        |      |       | 901        |        |   |       | 1,279      |       
|                         | Cost of marketing services |                          |       |                   |        |                   |       |           |        |      |       |           |        |   |       |           |       
|                         | Marketing and sales        |                          |       | 1,534              |        |                   |       | 2,488      |        |      |       | 2,113      |        |   |       | 3,251      |       
|                         | Product development        |                          |       | 70                 |        |                   |       | 61         |        |      |       | 148        |        |   |       | 180        |       
|                         | General and administrative |                          |       | 750                |        |                   |       | 687        |        |      |       | 1,418      |        |   |       | 1,397      |       
|                         | Tax related benefit        |                          |       |                   |        |                   |       |           |        |      |       |            |        |   |       | (515       | )     
|                         | Non-cash compensation      |                          |       | 100                |        |                   |       | 48         |        |      |       | 313        |        |   |       | 179        |       
|                         |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           
|                         |                            | Total operating expenses |       |                    | 12,303 |                   |       |            | 17,705 |      |       |            | 14,619 |   |       |            | 20,108 | 
|                         |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           
|Profit from operations   |                            |                          | 2,079 |                    |        |                   | 3,760 |            |        |      | 900   |            |        |   | 3,096 |           
|                         |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           
|Other income, net:       |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           
|                         | Interest income            |                          |       | 71                 |        |                   |       | 52         |        |      |       | 239        |        |   |       | 184        |       
|                         | Other income               |                          |       | (2                 | )      |                   |       | 1          |        |      |       | 253        |        |   |       | 1          |       
|                         |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           
|                         | Other income, net          |                          |       | 69                 |        |                   |       | 53         |        |      |       | 492        |        |   |       | 185        |       
|                         |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           
|Net income               |                            | $                        | 2,148 |                    |        | $                 | 3,813 |            |        | $    | 1,392 |            |        | $ | 3,281 |           
|                         |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           
|Net income per share:    |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           
|                         | Basic                      |                          | $     | 0.13               |        |                   | $     | 0.23       |        |      | $     | 0.09       |        |   | $     | 0.20       |       
|                         |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           
|                         | Diluted                    |                          | $     | 0.13               |        |                   | $     | 0.22       |        |      | $     | 0.09       |        |   | $     | 0.19       |       
|                         |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           
|Weighted average shares: |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           
|                         | Basic                      |                          |       | 16,116,916         |        |                   |       | 16,515,833 |        |      |       | 16,069,410 |        |   |       | 16,411,702 |       
|                         |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           
|                         | Diluted                    |                          |       | 16,971,310         |        |                   |       | 17,467,293 |        |      |       | 16,354,208 |        |   |       | 17,418,442 |       
|                         |                            |                          |       |                    |        |                   |       |            |        |      |       |            |        |   |       |           

See accompanying notes to condensed consolidated financial statements.

Page 3



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VARSITY GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

|                                     |                                                                                                                                                                                 |                                            |   |         |                   |  |                    |         |             |  | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ------- | ----------------- |  | ------------------ | ------- | ----------- |  | 
|                                     |                                                                                                                                                                                 |                                            |   |         | December 31, 2002 |  | September 30, 2003
|                                     |                                                                                                                                                                                 |                                            |   |         |                   |  |                   
|                                     |                                                                                                                                                                                 |                                            |   |         |                   |  |                    |         | (unaudited)
|ASSETS                              
|Current assets:                      |                                                                                                                                                                                 |                                            |   |         |                   |  |                    |        
|                                     | Cash and cash equivalents                                                                                                                                                       |                                            | $ | 16,950  |                   |  | $                  | 19,064  |            
|                                     | Short-term investments                                                                                                                                                          |                                            |   | 1,500   |                   |  |                    |        |            
|                                     | Accounts receivable, net
of allowance of doubtful
accounts of $13 at
December 31, 2002 and at
September 30, 2003                                                                |                                            |   | 263     |                   |  |                    | 3,267   |            
|                                     | Other current assets                                                                                                                                                            |                                            |   | 297     |                   |  |                    | 818     |            
|                                     |                                                                                                                                                                                 |                                            |   |         |                   |  |                    |         |            
|                                     |                                                                                                                                                                                 | Total current assets                       |   |         | 19,010            |  |                    |         | 23,149      | 
|                                     | Fixed assets, net                                                                                                                                                               |                                            |   | 41      |                   |  |                    | 126     |            
|                                     | Other assets                                                                                                                                                                    |                                            |   | 23      |                   |  |                    | 23      |            
|                                     |                                                                                                                                                                                 |                                            |   |         |                   |  |                    |         |            
|                                     |                                                                                                                                                                                 | Total assets                               |   | $       | 19,074            |  |                    | $       | 23,298      | 
|                                     |                                                                                                                                                                                 |                                            |   |         |                   |  |                    |         |            
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                                                                 |                                            |   |         |                   |  |                    |        
|                                     | Accounts payable                                                                                                                                                                |                                            | $ | 203     |                   |  | $                  | 576     |            
|                                     | Other accrued expenses and other current liabilities                                                                                                                            |                                            |   | 573     |                   |  |                    | 1,080   |            
|                                     | Taxes payable                                                                                                                                                                   |                                            |   | 1,286   |                   |  |                    | 925     |            
|                                     |                                                                                                                                                                                 |                                            |   |         |                   |  |                    |        
|                                     |                                                                                                                                                                                 | Total current liabilities                  |   |         | 2,062             |  |                    |         | 2,581       | 
|Long-term liabilities                |                                                                                                                                                                                 |                                            |  |         |                   |  |                   |        
|                                     |                                                                                                                                                                                 |                                            |   |         |                   |  |                    |        
|                                     |                                                                                                                                                                                 | Total liabilities                          |   |         | 2,062             |  |                    |         | 2,581       | 
|                                     |                                                                                                                                                                                 |                                            |   |         |                   |  |                    |        
|Stockholders equity:                |                                                                                                                                                                                 |                                            |   |         |                   |  |                    |        
|                                     | Preferred stock: $.0001 par value, 20,000,000 shares
authorized; 0 shares issued and outstanding at
December 31, 2002 and September 30, 2003                                    |                                            |   |        |                   |  |                    |        |            
|                                     | Common stock: $.0001 par value, 60,000,000 shares
authorized, 17,098,666 and 17,474,471 shares issued
and outstanding at December 31, 2002 and September
30, 2003, respectively |                                            |   | 2       |                   |  |                    | 2       |            
|                                     | Additional paid-in capital                                                                                                                                                      |                                            |   | 87,638  |                   |  |                    | 87,883  |            
|                                     | Deferred compensation                                                                                                                                                           |                                            |   | (254    | )                 |  |                    | (75     | )          
|                                     | Accumulated deficit                                                                                                                                                             |                                            |   | (69,800 | )                 |  |                    | (66,519 | )          
|                                     | Treasury Stock, $.0001 par value, 957,063 shares at
December 31, 2002 and September 30, 2003                                                                                    |                                            |   | (574    | )                 |  |                    | (574    | )          
|                                     |                                                                                                                                                                                 |                                            |   |         |                   |  |                    |        
|                                     |                                                                                                                                                                                 | Total stockholders equity                 |   |         | 17,012            |  |                    |         | 20,717      | 
|                                     |                                                                                                                                                                                 |                                            |   |         |                   |  |                    |        
|                                     |                                                                                                                                                                                 | Total liabilities and stockholders equity |   | $       | 19,074            |  |                    | $       | 23,298      | 
|                                     |                                                                                                                                                                                 |                                            |   |         |                   |  |                    |        

See accompanying notes to condensed consolidated financial statements.

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VARSITY GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

|                                                                            |                                              |                                                      |                                                         |        |                   |        |        |        |        |       | 
|--------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------------------------- | ------------------------------------------------------- | ------ | ----------------- | ------ | ------ | ------ | ------ | ----- | 
|                                                                            |                                              |                                                      |                                                         |        | Nine Months Ended
|                                                                            |                                              |                                                      |                                                         |        | September 30,    
|                                                                            |                                              |                                                      |                                                         |        |                  
|                                                                            |                                              |                                                      |                                                         |        | 2002              |        | 2003  
|                                                                            |                                              |                                                      |                                                         |        |                   |        |       
|Operating activities:                                                       |                                              |                                                      |                                                         |        |                   |        |        |       
|                                                                            | Net income                                   |                                                      | $                                                       | 1,392  |                   |        | $      | 3,281  |       
|Adjustments to reconcile net loss to net cash used in operating
activities: |                                              |                                                      |                                                         |        |                   |        |        |       
|                                                                            | Depreciation and amortization                |                                                      |                                                         | 151    |                   |        |        | 36     |       
|                                                                            | Bad debt expense                             |                                                      |                                                         | 10     |                   |        |        |       |       
|                                                                            | Non-cash compensation                        |                                                      |                                                         | 313    |                   |        |        | 179    |       
|                                                                            | Tax related benefit                          |                                                      |                                                         |       |                   |        |        | (515   | )     
|                                                                            | Changes in operating assets and liabilities: |                                                      |                                                         |        |                   |        |        |        |       
|                                                                            |                                              | Accounts receivable, net                             |                                                         |        | (2,055            | )      |        |        | (3,004 | )    
|                                                                            |                                              | Other current assets                                 |                                                         |        | (49               | )      |        |        | (521   | )    
|                                                                            |                                              | Accounts payable                                     |                                                         |        | 192               |        |        |        | 373    |      
|                                                                            |                                              | Other accrued expenses and other current liabilities |                                                         |        | 666               |        |        |        | 507    |      
|                                                                            |                                              | Taxes payable                                        |                                                         |        | 331               |        |        |        | 154    |      
|                                                                            |                                              | Other non-current assets                             |                                                         |        | 64                |        |        |        |       |      
|                                                                            |                                              |                                                      |                                                         |        |                   |        |        |       
|                                                                            |                                              |                                                      | Net cash provided from operating activities             |        |                   | 1,015  |        |        |        | 490   | 
|                                                                            |                                              |                                                      |                                                         |        |                   |        |        |       
|Investing activities:                                                       |                                              |                                                      |                                                         |        |                   |        |        |       
|                                                                            | Additions to fixed assets                    |                                                      |                                                         | (23    | )                 |        |        | (121   | )     
|                                                                            | Increase in short-term investments           |                                                      |                                                         | (3,000 | )                 |        |        | (1,500 | )     
|                                                                            | Decrease in short-term investments           |                                                      |                                                         |        |                   |        |        | 3,000  |       
|                                                                            | Proceeds from sale of fixed assets           |                                                      |                                                         | 11     |                   |        |        |       |       
|                                                                            |                                              |                                                      |                                                         |        |                   |        |        |       
|                                                                            |                                              |                                                      | Net cash provided from / (used in) investing activities |        |                   | (3,012 | )      |        |        | 1,379 | 
|                                                                            |                                              |                                                      |                                                         |        |                   |        |        |       
|Financing activities:                                                       |                                              |                                                      |                                                         |        |                   |        |        |       
|                                                                            | Proceeds from exercise of stock options      |                                                      |                                                         | 12     |                   |        |        | 245    |       
|                                                                            |                                              |                                                      |                                                         |        |                   |        |        |       
|                                                                            |                                              |                                                      | Net cash provided by financing activities               |        |                   | 12     |        |        |        | 245   | 
|                                                                            |                                              |                                                      |                                                         |        |                   |        |        |       
|Net increase/(decrease) in cash and cash equivalents                        |                                              |                                                      | (1,985                                                  | )      |                   |        | 2,114  |       
|Cash and cash equivalents at beginning of period                            |                                              |                                                      | 16,811                                                  |        |                   |        | 16,950 |       
|                                                                            |                                              |                                                      |                                                         |        |                   |        |        |       
|Cash and cash equivalents at end of period                                  |                                              | $                                                    | 14,826                                                  |        |                   | $      | 19,064 |       
|                                                                            |                                              |                                                      |                                                         |        |                   |        |        |       

See accompanying notes to consolidated financial statements

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VARSITY GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Description of Operations

Varsity Group Inc. (the Company) is an Internet retailer of textbooks and
educational materials targeting private middle and high schools, small colleges
and distance and continuing education markets through its eduPartnersprogram.
As an Internet retailer, the Company uses its website, www.varsitybooks.com,
to sell textbooks and other learning materials to students nationwide.

Varsity Group Inc. was incorporated on December 16, 1997 and launched its
website in August 1998, at which time the Company began generating revenues. In
August 1999, the Company established two wholly-owned subsidiaries,
CollegeImpact.com, Inc. and VarsityBooks.com, LLC to assist in the overall
management of its marketing and retailing activities, respectively.

In February 2000, the Company completed an initial public offering. Net
proceeds to the Company from the initial public offering totaled $36.0 million.
Effective upon the closing of the offering, all shares of the Companys
preferred stock converted into 8,966,879 shares of the Companys common stock.

The mailing address of our headquarters is 1850 M Street, Suite 1150,
Washington, DC 20036, and our telephone number is (202) 667-3400. Our corporate
Website is www.varsity-group.com. Through a link on our Press Releases area of
the Media section of our Website,we make available the following filings as
soon as reasonably practicable after they are electronically filed with or
furnished to the SEC: our Annual Report on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and any amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934. All such filings are available free of charge.

Note 2: Basis of Presentation

The condensed consolidated financial statements of Varsity Group Inc. and
subsidiaries included herein have been prepared by the Company without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
and reflect all adjustments which are, in the opinion of management, necessary
for a fair presentation of the results for the interim period in conformity
with generally accepted accounting principles.

Certain information and footnote disclosure normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The interim financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 2002. Operating results for the interim periods are not
necessarily indicative of results for an entire year.

Certain reclassifications of prior year amounts have been made to conform with
the current year presentation.

Note 3: Tax Related Benefit

Tax related benefit consists of certain business taxes and related expenses or
accruals. During the nine months ended September 30, 2003 the Company recorded
negative tax related expense of $0.5 million compared to no expense for the
nine months ended September 30, 2002. This decrease was primarily attributable
to the release of earlier tax accruals recorded primarily between 1999 and
2001.

Note 4: Related Party Transactions

Since inception, the Company has outsourced the majority of its ordering,
inventory, warehousing and fulfillment needs to Baker & Taylor, a leading
distributor of books, videos and music products. The Company fulfills most of
its textbook orders through Baker & Taylor with which it has a series of
agreements that extend through June 30, 2004. These agreements have a
provision allowing for their automatic renewal for an additional one-year
period unless either party provides the other party notice of their intent to
terminate the agreement at least 120 days prior to its expiration. From July
1998 through June 2003, Mr. James Ulsamer, President of Baker & Taylor Retail,
served on the Companys Board of Directors. Also, until July 2003 Baker &
Taylor was controlled by a significant shareholder of the Company. Therefore,
the Company has historically identified certain line items associated with its
relationship with Baker & Taylor on its balance sheet and income statement as
related party transactions. Effective with expiration of Mr. Ulsamers term on
the Companys Board of Directors and the sale of Baker & Taylor by the
stockholder this policy was discontinued.

Page 6



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For the nine months ending September 30, 2003 the Company recorded
approximately $14.3 million in cost of books, $1.3 million in cost of shipping
and $1.3 million in marketing and related expenses associated with our
agreement with Baker & Taylor. For the nine months ending September 30, 2002
the Company recorded approximately $9.7 million in cost of books, $0.9 million
in cost of shipping and $1.0 million in marketing and related expenses
associated with our agreement with Baker & Taylor. These increases were
primarily attributable to the Companys increased sales volume between periods.

For the three months ending September 30, 2003 the Company recorded
approximately $13.3 million in cost of books, $1.1 million in cost of shipping
and $1.2 million in marketing and related expenses associated with our
agreement with Baker & Taylor. For the three months ending September 30, 2002
the Company recorded approximately $9.0 million in cost of books, $0.8 million
in cost of shipping and $0.9 million in marketing and related expenses
associated with our agreement with Baker & Taylor. These increases were
primarily attributable to the Companys increased sales volume between periods.

Note 5: Subsequent Events

On October 24, 2003, the Board of Directors of the Company, with Mr. Kuhn
abstaining, approved the repurchase of 175,000 shares of the Companys common
stock from two officers of the Company. The purchase price of $658,875 to be
paid in cash for the shares is $3.765 per share, representing a five percent
discount from the 30-day trailing average ending on November 3, 2003. This
transaction will have no effect on the Companys results of operations.

Item 2:Managements Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This document contains forward-looking statements. These statements relate to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as may, will,
should, except, plan, anticipate, expect, believe, estimate,
predict, potential or continue, the negative of such terms or other
comparable terminology. These statements are only predictions. Actual events
or results may differ materially.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of the
forward-looking statements. We are under no duty to update any of the
forward-looking statements after the date of this report to conform such
statements to actual results or to changes in our expectations.

Readers are also urged to carefully review and consider the various disclosures
made by us that attempt to advise interested parties of the factors which
affect our business, including without limitation the disclosures made under
the caption Managements Discussion and Analysis of Financial Condition and
Results of Operations included herein and under the captions Managements
Discussion and Analysis of Financial Condition and Results of Operations and
Risk Factors included in the Companys Annual Report on Form 10-K for the
year ended December 31, 2002 and other reports and filings made with the
Securities and Exchange Commission.

Overview

We are a leading online retailer of textbooks and educational materials
targeting private middle and high schools, colleges and distance and continuing
education markets. Through eduPartners, our program serving schools and
organizations directly, we provide an opportunity for educational institutions
to maximize their resources and offer increased convenience and value to their
students by outsourcing to us the sale of new textbooks and other learning
materials. At these institutions we are endorsed as the schools official
bookstore and gain direct access and exposure to their students.

We were incorporated in December 1997 and began offering books for sale on our
website on August 10, 1998. In January 1999 we created eduPartners, whereby we
became the exclusive provider of new books and learning materials to a variety
of learning institutions. By entering exclusive contractual agreements with
educational institutions, this innovative program offers a cost-effective model
which enables us to aggregate customers and revenues without the significant
marketing and brand building expenses associated with traditional mass
marketing or retail consumer brand building campaigns. Additional operational
benefits include greater sales visibility and predictability and attractive
sell-through or penetration per school account.

During 2000, we began to focus resources on the growth and development of our
eduPartners program and it is the foundation of our business today. In the
quarter ending September 30, 2003, revenues from eduPartners accounted for
approximately 98% of total book related revenues, an increase from the 69%
share of total book related revenues eduPartners represented during the quarter
ending September 30, 2000. The number of eduPartners schools has grown from
approximately 20 schools during the 1999 Fall back-to-school season to over 210
schools served during the recently completed 2003 back-to-school season,
representing an 80% compounded annual growth rate over the last four years.

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We expect eduPartners to remain the primary source of revenues moving forward.
Net sales consist of sales of books and charges to customers for outbound
shipping and are net of allowances for returns, promotional discounts and
coupons. Revenues from sales of textbooks are recognized at the time products
are received by the customer.

We are able to reduce the overhead associated with textbook sales because we do
not maintain individual on-site stores and we outsource our ordering,
inventory, warehousing and fulfillment needs with Baker & Taylor, a leading
distributor of books, videos and music products. We fulfill most of our
textbook orders through Baker & Taylor with which we have a series of
agreements that extend through June 30, 2004. These agreements have a
provision allowing for their automatic renewal for an additional one-year
period unless either party provides the other party notice of their intent to
terminate the agreement at least 120 days prior to its expiration. We
continually evaluate our fulfillment arrangements, including whether to use
other or substitute vendors or to dedicate the capital and other resources to
develop some or all of these capabilities in-house.

We base our current and future expense levels on our operating plans and
estimates of future revenues. We intend to continue to increase spending on
the development of eduPartners and relationships with other related businesses.
Our strategic initiatives and investments are aimed at meeting the
requirements of our customers, increasing our operational flexibility,
improving our relative cost position and margins, expanding the addressable
universe of customers in our current markets, or entering new markets which
offer the potential for attractive revenue and earnings growth. To this end,
from time to time, in addition to developing new products or programs
internally, in the ordinary course of business we consider and engage in
negotiations related to acquisitions, investments in privately held companies,
strategic alliances and other strategic transactions as possible devices to
execute our growth or development initiatives. We cannot assure you that we
will complete any transaction of this sort or that, if completed, any such
transaction will be successful from a financial point of view.

Based upon the strength of our financial performance during the three months
ending September 30, 2003 we believe we are positioned to significantly improve
upon the financial performance of 2002 for our fiscal year ending December 31,
2003. During the nine months ending September 30, 2003, net sales grew by
approximately 50% while net income increased by over 135% compared to the same
period in 2002. Moreover, we believe our recent growth levels, strong sales
pipeline and execution and the leadership position our eduPartners program has
established in the private high school marketplace will allow us to continue
top line revenue and earnings growth in 2004.

During the nine months ending September 30, 2003 the Company reported net
income of approximately $3.3 million, an increase of over 135% from the $1.4
million of net income reported for the same period in 2002. As a product of
this strong performance, we expect our fiscal year ending December 31, 2003
will mark our second consecutive profitable fiscal year and third consecutive
fiscal year with positive cash flow from operations. The statements in the
two preceding paragraphs include forward-looking statements subject to material
risks and uncertainties, including the continued execution of our business
strategy as we have currently forecast and no significant change in the
competitive landscape, which cannot be assured.

Prior to the fiscal year ended December 31, 2002, we had incurred substantial
losses in every fiscal year since inception. For the year ended December 31,
2001, we incurred a loss from operations of approximately $2.8 million and
positive cash flows from operations of $0.4 million. For the year ended
December 31, 2000, we incurred a loss from operations of approximately $34.8
million and negative cash flows from operations of $27.5 million. For the year
ended December 31, 1999, we incurred a loss from operations of approximately
$31.9 million and negative cash flows from operations of $29.4 million. As of
December 31, 2001 and 2002 we had accumulated deficits of approximately $70.5
million and $69.8 million, respectively.

Three Months Ended September 30, 2003
compared to
Three Months Ended September 30, 2002

Net Sales

Net sales increased to $21.5 million for the three months ended September 30,
2003 from $14.4 million for the three months ended September 30, 2002. This
increase was primarily attributable to the Companys success building revenues
within the eduPartners program.

Operating Expenses

Cost of Books Cost of books consists of the cost of books sold to customers.
Cost of books-related party increased to approximately $13.3 million for the
three months ended September 30, 2003 from $9.0 million for the three months
ended September 30, 2002. This increase was primarily attributable to our
increased sales volume.

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Cost of Shipping Cost of shipping consists of outbound shipping to the
customer. Cost of shipping was approximately $1.2 million for the three months
ended September 30, 2003 compared to approximately $0.8 million for the three
months ended September 30, 2002.

Marketing and Sales Marketing and sales expense consists primarily of
advertising and promotional expenditures, credit card processing fees and
payroll and related expenses for personnel engaged in the marketing and
expansion of eduPartners. Marketing and sales expense increased to $2.5 million
for the three months ended September 30, 2003, from approximately $1.5 million
for the three months ended September 30, 2002. This increase was primarily
attributable to higher costs associated with sales and marketing fees related
to our agreement with Baker & Taylor and higher sales promotional expenditures,
credit card processing fees and staffing levels and related expense. Certain
marketing and sales expenses associated with our agreement with Baker & Taylor
are the product of the classification of services such as website content and
customer database management as marketing and sales expense and we expect these
costs will increase in absolute dollars as we expand our business.

Product Development Product development expense consists of payroll and
related expenses such as the amortization of deferred compensation for
development and systems personnel and consultants. Product development expense
decreased to approximately $61,000 for the three months ended September 30,
2003 from $70,000 for the three months ended September 30, 2002. This decrease
was primarily attributable to decreased consulting and personnel costs between
periods.

General and Administrative General and administrative expense consists of
payroll and related expenses for executive and administrative personnel such as
the amortization of deferred compensation, facilities expenses, professional
services expenses, travel and other general corporate expenses. General and
administrative expense was approximately $0.7 million for the three months
ended September 30, 2003 compared to $0.8 million for the three months ended
September 30, 2002. This decrease was primarily attributable to decreased
professional services and insurance expenses between periods.

Non-Cash Compensation Non-cash compensation expense consists of expenses
related to the granting of employee options and restricted stock grants
measured based on the intrinsic value of the stock option or grant. Non-cash
compensation expense decreased to approximately $48,000 for the three months
ended September 30, 2003 from $0.1 million for the three months ended September
30, 2002. This decrease was primarily attributable to lower amortized
compensation expense for options issued before the Companys initial public
offering. Non-cash compensation expense is amortized based upon an accelerated
expense schedule, resulting in higher than average expenses in the early years
and lower than average expenses in the later years.

Other Income, Net

Other income, net consists primarily of interest income on our cash and cash
equivalents and investments and gains or losses associated with the disposal of
fixed assets. Other income was $53,000 for the three months ended September 30,
2003 compared to $69,000 for the three months ended September 30, 2002.
Interest income decreased to $52,000 for the three months ended September 30,
2003 from $71,000 for the three months ended September 30, 2002 largely due to
lower interest rates compared to the previous period.

Income Taxes

As of September 30, 2003, we had net operating loss carryforwards for federal
income tax purposes of approximately $57.0 million, which expire beginning in
2018. We have provided a full valuation allowance on the resulting deferred tax
asset because of uncertainty regarding its realizability. For the three months
ended September 30, 2003, no income tax expense was recognized because the
reduction in the deferred tax asset related to net operating losses was offset
by a related reduction in the valuation allowance.

Nine months Ended September 30, 2003
compared to
Nine months Ended September 30, 2002

Net Sales

Net sales increased to $23.2 million for the nine months ended September 30,
2003 from $15.5 million for the nine months ended September 30, 2002. This
increase was primarily attributable to the Companys success building revenues
within the eduPartners program. We recognized $20,000 of marketing services
revenue during the nine months ended September 30, 2003, an increase from the
$14,000 recognized in the same period in 2002.

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Operating Expenses

Cost of Books Cost of books consists of the cost of books sold to customers.
Cost of books-related party increased to approximately $14.3 million for the
nine months ended September 30, 2003 from $9.7 million for the nine months
ended September 30, 2002. This increase was primarily attributable to our
increased sales volume.

Cost of Shipping Cost of shipping consists of outbound shipping to the
customer. Cost of shipping increased to approximately $1.3 million for the nine
months ended September 30, 2003 from approximately $0.9 million for the nine
months ended September 30, 2002. This increase was primarily attributable to
our increased sales volume.

Marketing and Sales Marketing and sales expense consists primarily of
advertising and promotional expenditures, credit card processing fees and
payroll and related expenses for personnel engaged in the marketing and
expansion of eduPartners. Marketing and sales expense increased to $3.3 million
for the nine months ended September 30, 2003, from approximately $2.1 million
for the nine months ended September 30, 2002. This increase was primarily
attributable to higher costs associated with sales and marketing fees related
to our agreement with Baker & Taylor and higher sales promotional expenditures,
credit card processing fees and staffing levels and related expense. Certain
marketing and sales expenses associated with our agreement with Baker & Taylor
are the product of the classification of services such as website content and
customer database management as marketing and sales expense and we expect these
costs will increase in absolute dollars as we expand our business.

Product Development Product development expense consists of payroll and
related expenses such as the amortization of deferred compensation for
development and systems personnel and consultants. Product development expense
increased to approximately $0.2 million for the nine months ended September 30,
2003 from $0.1 million for the nine months ended September 30, 2002. This
increase was primarily attributable to increased web development, consulting
and personnel costs between periods.

General and Administrative General and administrative expense consists of
payroll and related expenses for executive and administrative personnel such as
the amortization of deferred compensation, facilities expenses, professional
services expenses, travel and other general corporate expenses. General and
administrative expense was approximately $1.4 million for the nine months ended
September 30, 2003, similar to the $1.4 million expensed for the nine months
ended September 30, 2002.

Tax Related BenefitTax related benefit consists of certain business taxes and
related expenses or accruals. During the nine months ended September 30, 2003
we recorded negative tax related expense of $0.5 million compared to no expense
for the nine months ended September 30, 2002. This decrease was primarily
attributable to the release of earlier tax accruals recorded primarily between
1999 and 2001.

Non-Cash Compensation Non-cash compensation expense consists of expenses
related to the granting of employee options and restricted stock grants
measured based on the intrinsic value of the stock option or grant. Non-cash
compensation expense decreased to approximately $0.2 million for the nine
months ended September 30, 2003 from $0.3 million for the nine months ended
September 30, 2002. This decrease was primarily attributable to lower amortized
compensation expense for options issued before the Companys initial public
offering. Non-cash compensation expense is amortized based upon an accelerated
expense schedule, resulting in higher than average expenses in the early years
and lower than average expenses in the later years.

Other Income, Net

Other income, net consists primarily of interest income on our cash and cash
equivalents and investments and gains or losses associated with the disposal of
fixed assets. Other income was $0.2 million for the nine months ended September
30, 2003 compared to $0.5 million for the nine months ended September 30, 2002.
Interest income was $0.2 million for the nine months ended September 30, 2003,
similar to the $0.2 million recorded during the nine months ended September 30,
2002. During the three months ended September 30, 2002, the Company received
a $252,000 payment for a prepaid marketing balance that was previously written
off as uncollectable.

Income Taxes

As of September 30, 2003, we had net operating loss carryforwards for federal
income tax purposes of approximately $57.0 million, which expire beginning in
2018. We have provided a full valuation allowance on the resulting deferred tax
asset because of uncertainty regarding its realizability. For the nine months
ended September 30, 2003, no income tax expense was recognized because the
reduction in the deferred tax asset related to net operating losses was offset
by a related reduction in the valuation allowance.

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Liquidity and Capital Resources

As of September 30, 2003, we had $19.0 million of cash, cash equivalents and
short term investments. As of that date, our principal commitments consisted of
obligations outstanding, accounts payable and accrued liabilities. Although we
have no material commitments for capital expenditures, we may experience
increases in our capital expenditures and lease commitments consistent with
anticipated growth in operations, infrastructure and personnel.

Net cash provided by operating activities was $0.5 million for the nine months
ended September 30, 2003 compared to $1.0 million net provided by operating
activities for the nine months ended September 30, 2002. This decrease was
largely attributable to increases in payroll and related expenses and changes
in accounts receivable and accrued expenses.

Net cash provided by investing activities was $1.4 million for the nine months
ended September 30, 2003 compared to net cash used in investing activities of
$3.0 million for the nine months ended September 30, 2002. This decrease was
largely due to the decrease in high-grade short-term investments during the
period.

Net cash provided by financing activities was $0.2 million for the nine months
ended September 30, 2003 and $12,000 for the nine months ended September 30,
2002. Net cash provided by financing activities during the nine months ending
September 30, 2003 and September 30, 2002 consisted primarily of net proceeds
from the exercise of employee stock options.

We base our current and future expense levels on our operating plans and
estimates of future revenues. We intend to continue to increase spending on
the development of eduPartners and relationships with other related businesses.
Our strategic initiatives and investments are aimed at meeting the
requirements of our customers, increasing our operational flexibility,
improving our relative cost position and margins, expanding the addressable
universe of customers in our current markets, or entering new markets which
offer the potential for attractive revenue and earnings growth. To this end,
from time to time, in addition to developing new products or programs
internally, in the ordinary course of business we consider and engage in
negotiations related to acquisitions, investments in privately held companies,
strategic alliances and other strategic transactions as possible devices to
execute our growth or development initiatives. We cannot assure you that we
will complete and transaction of this sort or that, if completed, any such
transaction will be successful from a financial point of view.

Our board of directors continually evaluates the appropriate use of our capital
resources in light of the expected generation or use of funds in operations,
anticipated capital expenditures, possible acquisitions, as well as alternative
uses which could include stock repurchases, dividends or similar distributions
if deemed prudent and in our best interests by the board of directors.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

The Company is subject to interest rate risk on its cash and cash equivalents,
short-term investments and credit facility. If market rates were to increase
immediately and uniformly by 10% from the level at September 30, 2003, the
change to the Companys interest sensitive assets and liabilities would have an
immaterial effect on the Companys financial position, results of operations
and cash flows over the next fiscal year.

Item 4.     Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms and that such information
is accumulated and communicated to our management, including our CEO and CFO,
as appropriate, to allow for timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired
control objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the
supervision and with the participation of our management, including our CEO and
CFO, of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the quarter covered by this report.
Based on the foregoing, the CEO and CFO concluded that our disclosure controls
and procedures were effective at the reasonable assurance level.

There has been no change in our internal controls over financial reporting
during the most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.

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PART II.
OTHER INFORMATION



|Item 1: |  | Legal Proceedings
|------- |  | -----------------
|       
|        |  | Not Applicable   



|Item 2: |  | Changes in Securities
|------- |  | ---------------------
|       
|        |  | Not Applicable       



|Item 3: |  | Defaults Upon Senior Securities
|------- |  | -------------------------------
|       
|        |  | Not Applicable                 



|Item 4: |  | Submission of Matters to a Vote of Security Holders                                                  
|------- |  | -----------------------------------------------------------------------------------------------------
|       
|        |  | At the Annual Meeting of Stockholders held on June 26, 2003, the
stockholders of Varsity Group, Inc.:



| | 1. |  | Ratified the selection of PricewaterhouseCoopers LLP as
the Companys independent auditors for 2003. The voting results
were 12,185,354 - For; 7,675 - Against; and 6,650 - Abstained.                                                                                                                                                     
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Approved an amendment to the Companys Second Amended
and Restated 1998 Stock Option Plan to increase the number of
shares that may be issued under the plan from 5.5 million to 7.0
million, and to provide for an automatic share increase
provision. The voting results were 9,054,511 - For; 168,413 -
Against; and 78,686 - Abstained.



|Item 5: |  | Other Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       
|        |  | On October 24, 2003, the Board of Directors of our company, with Mr. Kuhn
abstaining, approved the repurchase of 175,000 shares of our common
stock, consisting of 125,000 shares to be repurchased from our CEO, Mr.
Kuhn, and 50,000 shares to be repurchased from our CFO, Mr. Benson. The
purchase price for the shares is $3.765 per share in cash, representing a
five percent discount from the 30-day trailing average ending on November
3, 2003. Each of the officers has also agreed not to sell any additional
shares for 90 days. The shares repurchased represent approximately five
percent of the beneficial ownership of each officer. Mr. Benson has
never sold any shares in the Company and Mr. Kuhn has not sold any shares
since February 2000. This transaction will have no effect on our results
of operations.
|       
|        |  | In determining to approve this repurchase, our Board recognized that in
recent years a substantial portion of the incentive compensation provided
to Messrs. Kuhn and Benson has been in the form of company stock,
particularly due to the significant negative cash flows that that company
was incurring. In light of the highly improved financial performance of
the Company and its large and growing cash position, the Board determined
that Company would be well served by repurchasing some shares at a
discount to prevailing market prices and that such a transaction would
permit Messrs. Kuhn and Benson to realize a relatively small portion of
the appreciation in the stock held by them.                                                                                                                           



|Item 6: |  | Exhibits and Reports on Form 8-K
|------- |  | --------------------------------
|       

| | (a) | Exhibits
| | --- | --------

| |  |  |      |  |  |                                                                                                                                                                                                                                                                            
| |  |  | ---- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 31   |  |  | Certifications of the Companys Chief Executive
Officer and Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.                                                                                                                             
| |  |  |      |  |  |                                                                                                                                                                                                                                                                            
| |  |  | 32   |  |  | Certifications of the Companys Chief Executive
Officer and Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.                                                                                                                             
| |  |  |      |  |  |                                                                                                                                                                                                                                                                            
| |  |  | 10.1 |  |  | Amendment to the Companys Second Amended and
Restated 1998 Stock Option Plan approved by stockholders at the
2003 Annual Meeting of Stockholders. (Incorporated by reference
to Exhibit A of the Companys Definitive Proxy Statement on
Schedule 14A filed May 30, 2003.)
| |  |  |      |  |  |                                                                                                                                                                                                                                                                            
| |  |  | 10.2 |  |  | Employment Agreement made as of August 18, 2003
between Varsity Group, Inc. and Daniel Rush, Vice President of
Sales.                                                                                                                                                      
| |  |  |      |  |  |                                                                                                                                                                                                                                                                            
| |  |  | 10.3 |  |  | Employment Agreement made as of August 18, 2003
between Varsity Group, Inc. and Jeff Gatto, Vice President of
Operations.                                                                                                                                                  
| |  |  |      |  |  |                                                                                                                                                                                                                                                                            
| |  |  | 10.4 |  |  | Employment Agreement made as of August 18, 2003
between Varsity Group, Inc. and Jack M Benson, Chief Financial
Officer.                                                                                                                                                    



| | (b) | Reports on Form 8-K
| | --- | -------------------
|
| |     | None               

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SIGNATURES

Pursuant to the requirements 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.

|                       |  |                               
|---------------------- |  | ------------------------------
|Date: November 4, 2003 |  |                               
|                       |  | Varsity Group Inc.            
|                       |  |                               
|                       |  | By:          /s/ JACK M BENSON
|                       |  |                               
|                       |  | Jack M Benson                 
|                       |  | Chief Financial Officer       

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