<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
         EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 1997

OR

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the transition period from ............ to ............

Commission file number       0-19790
                             -------
        
                           Varsity Spirit Corporation
                           --------------------------
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                                <C> 
                             Tennessee                                        62-1169661
(State or other jurisdiction of incorporation or organization)     (IRS Employer Identification No.)
</TABLE>

               2525 Horizon Lake Drive, Suite 1, Memphis, TN 38133
                    (Address of principal executive offices)
                                   (Zip Code)

                                  (901)387-4300
              (Registrant's telephone number, including area code)


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 and 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. 
[X] Yes [ ] No


The number of shares of Registrant's Common Stock, $.01 par value, outstanding
at May 9, 1997: 4,563,866.





                                        1

<PAGE>   2







                   VARSITY SPIRIT CORPORATION AND SUBSIDIARIES

                                      INDEX


<TABLE>
<CAPTION>
                                                                                Page
                                                                                ----
<S>      <C>                                                                     <C>
Part I:  Financial Information

         Item 1:  Consolidated Financial Statements

                       Balance Sheets                                             3

                       Statements of Operations (Unaudited)                       4

                       Statements of Cash Flows (Unaudited)                       5

                       Statements of Stockholders' Equity (Unaudited)             6

                       Notes to Consolidated Financial Statements                 7

         Item 2:  Management's Discussion and Analysis of Financial Condition
                       and Results of Operations                                 10

Part II: Other Information

         Item 4: Submission of Matters to a Vote of Security Holders             15

         Item 6: Exhibits and Reports on Form 8-K                                15

                 Signatures                                                      16
</TABLE>


                                        2

<PAGE>   3



PART I:   FINANCIAL INFORMATION; ITEM I: FINANCIAL STATEMENTS
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                           (Unaudited)                    (Unaudited)
(IN THOUSANDS)                            Mar. 31, 1997  Dec. 31, 1996   Mar. 31, 1996
                                          -------------  -------------   ------------- 
<S>                                         <C>            <C>            <C> 
CURRENT ASSETS:
Cash and cash equivalents                   $  2,077       $  9,360       $    842
Accounts receivable, less allowance of         3,681          6,897          3,184
$220, $220, and $170
Inventories (Note 4)                           8,642          5,419          7,849
Prepaid expenses (Note 5)                      5,426          2,616          4,690
Deferred sales (Note 6)                          666            265            652
Refundable income taxes                        1,440            238          1,239
Deferred tax benefit                             256            259            207
                                            --------       --------       --------
             TOTAL CURRENT ASSETS             22,188         25,054         18,663
PROPERTY AND EQUIPMENT, less                   4,167          4,010          3,556
accumulated depreciation
GOODWILL/OTHER                                 8,944          8,727          6,606
                                            --------       --------       --------
TOTAL ASSETS                                $ 35,299       $ 37,791       $ 28,825
                                            ========       ========       ========
CURRENT LIABILITIES:
Accounts payable                            $  3,589       $  1,993       $  3,263
Accruals:
   Compensation and payroll taxes                330            849            307
   Income taxes                                 --              117           --
   Other                                         163            156             76
Customer deposits                              2,242          3,813          1,780
Curr. mat. of long-term debt                     120            120           --
                                            --------       --------       --------
          TOTAL CURRENT LIABILITIES            6,444          7,048          5,426
DEFERRED INCOME TAXES                            399            366            174
LONG-TERM DEBT                                   480            480           --
                                            --------       --------       --------
              TOTAL LIABILITIES                7,323          7,894          5,600
             SHAREHOLDERS' EQUITY
Preferred stock                                 --             --             --
Common stock                                      47             47             47
Additional paid-in-capital                    14,187         14,144         13,639
Exc. of purch. price over pred. basis         (2,517)        (2,517)        (2,517)
Retained earnings                             16,288         18,253         12,090
                                            --------       --------       --------
                                              28,005         29,927         23,259
Treasury stock                                   (29)           (30)           (34)
                                            --------       --------       --------
          TOTAL SHAREHOLDERS' EQUITY          27,976         29,897         23,225
                                            --------       --------       --------
         TOTAL LIABILITIES AND EQUITY       $ 35,299       $ 37,791       $ 28,825
                                            ========       ========       ========
</TABLE>


  See accompanying notes to the consolidated financial statements (unaudited).


                                        3

<PAGE>   4



VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                      Three Months
                                                     Ended Mar. 31,
                                                  1997           1996
                                                  ----           ----
<S>                                              <C>            <C>
REVENUES:
Uniforms and accessories                         $ 2,814        $ 2,277
Camps and events                                   5,527          4,139
                                                 -------        -------
                                                   8,341          6,416
COSTS OF REVENUES:
Uniforms and accessories                           1,996          1,618
Camps and events                                   3,791          3,094
                                                 -------        -------
                                                   5,787          4,712

GROSS PROFIT                                       2,554          1,704

SELLING, GENERAL, AND                              5,455          4,250
                                                 -------        -------
ADMINISTRATIVE EXPENSES
             Operating loss                       (2,901)        (2,546)
OTHER INCOME                                          62             47
                                                 -------        -------
      Loss before taxes on income                 (2,839)        (2,499)
TAXES ON INCOME (BENEFIT)                         (1,125)          (992)
                                                 -------        -------
(Note 8)
NET LOSS                                         $(1,714)       $(1,507)
                                                 =======        =======
NET LOSS PER SHARE                               $ (0.36)       $ (0.32)
                                                 =======        =======
WEIGHTED AVERAGE                                   4,732          4,705
COMMON SHARES (Note 9)                           =======        =======
</TABLE>



    See accompanying notes to consolidated financial statements (unaudited).



                                        4

<PAGE>   5



VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                           Three Months
                                                           Ended Mar. 31,
                                                       1997             1996
                                                       ----             ----
<S>                                                   <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                              $(1,714)        $(1,507)
Deferred income taxes                                      36             (31)
Depreciation                                              339             252
Amortization                                               72              49
Change in operating assets and liabilities:
Accounts receivable                                     2,815           2,814
Inventories                                            (3,223)         (2,923)
Prepaid expenses                                       (2,810)         (2,418)
Refundable income taxes                                (1,193)           (821)
Other assets                                             (289)            (26)
Accounts payable                                        1,596           1,585
Accruals                                                 (629)           (149)
Customer deposits                                      (1,571)           (285)
                                                      -------         -------
NET CASH USED BY OPERATING ACTIVITIES                  (6,571)         (3,460)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                       (496)           (681)
                                                      -------         -------
NET CASH USED BY INVESTING ACTIVITIES                    (496)           (681)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid                                      (251)           (180)
Proceeds from issuance of common stock                     35              83
                                                      -------         -------
NET CASH USED BY FINANCING ACTIVITIES                    (216)            (97)
DECREASE IN CASH AND CASH EQUIVALENTS                  (7,283)         (4,238)

CASH AND CASH EQUIVALENTS, beginning of period          9,360           5,080
                                                      -------         -------
CASH AND CASH EQUIVALENTS, end of period              $ 2,077         $   842
                                                      =======         =======
</TABLE>




    See accompanying notes to consolidated financial statements (unaudited).



                                        5

<PAGE>   6



VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>

                               Common         Common        Additional      Excess of       Retained       Treasury       Total
                               stock          stock          paid-in         purchase       Earnings        stock
                               shares         amount         capital        price over
                                                                            predecessor
                                                                               basis
<S>                            <C>            <C>             <C>             <C>            <C>             <C>         <C>       
BALANCES,                       4,736         $    47         $14,144        ($2,517)        $18,253        ($30)        $29,897
December 31, 1996

Net loss for the period                                                                       (1,714)                     (1,714)

Issuance of common                  4                              34                                           1             35
stock upon exercise of
stock options

Tax benefit related to                                              9                                                          9
exercise of stock
options (Note 11)

Cash dividends ($.055                                                                           (251)                       (251)
per share)

BALANCES, March 31, 1997        4,740         $    47         $14,187        ($2,517)        $16,288        ($29)        $27,976
                               ======         =======         =======        =======         =======        ====         =======

BALANCES,                       4,710         $    47         $13,523        ($2,517)        $13,777        ($36)        $24,794
December 31, 1995

Net loss for the period                                                                       (1,507)                     (1,507)

Issuance of common                                                 81                                          2              83
stock upon exercise of
stock options

Tax benefit related to                                             35                                                         35
exercise of stock
options (Note 11)

Cash dividends ($.04                                                                            (180)                       (180)
per share)

BALANCES, March 31, 1996        4,710         $    47         $13,639        ($2,517)        $12,090        ($34)        $23,225
                               ======         =======         =======        =======         =======        ====         =======
</TABLE>



    See accompanying notes to consolidated financial statements (unaudited).



                                        6

<PAGE>   7


VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 1:       The interim statements have been prepared pursuant to the
              requirements for reporting on Form 10-Q. The December 31, 1996
              balance sheet presented was derived from audited financial
              statements but does not include all disclosures required by
              generally accepted accounting principles. The interim financial
              statements and notes thereto should be read in conjunction with
              the Company's latest Annual Report on Form 10-K. In the opinion of
              management, the interim financial statements reflect all
              adjustments necessary for a fair presentation of financial
              position and operating results for the interim periods.

              The preparation of financial statements in conformity with
              generally accepted accounting principles requires that management
              make estimates and assumptions that effect the reported amounts of
              assets and liabilities at the date of the financial statements and
              the reported amounts of revenues and expenses during the reporting
              period. Actual results could differ from those estimates.

NOTE 2:       The results of operations for the three months ended March 31,
              1997 and 1996 are not necessarily indicative of results to be
              expected for the full year.

NOTE 3:       The consolidated financial statements include the accounts of
              Varsity Spirit Corporation and its subsidiaries. All material
              intercompany accounts and transactions are eliminated.

NOTE 4:       Inventories are summarized as follows:


<TABLE>
<CAPTION>
              (In thousands)      (Unaudited)                 (Unaudited)
                                    Mar. 31,      Dec. 31,      Mar. 31,
                                      1997          1996          1996
                                      ----          ----          ----
               <S>                   <C>           <C>           <C>
               Finished Goods        $6,544        $3,608        $5,980
               Raw Materials          2,098         1,811         1,869
                                     ------        ------        ------
                                     $8,642        $5,419        $7,849
                                     ======        ======        ======
</TABLE>



              Inventories are valued at the lower of cost or market. Cost is
              determined by the first-in, first-out method.



                                        7

<PAGE>   8


VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 5:       Prepaid expenses consist of the following:

<TABLE>
<CAPTION>
                                            (Unaudited)                  (Unaudited)
                                              Mar. 31,      Dec. 31,       Mar. 31,
                                                1997          1996          1996
                                                ----          ----          ----
               <S>                             <C>           <C>           <C> 
               Deferred costs:
                   Catalog/Brochures           $1,325        $  330        $1,082
                   Camps and clinics              785           501           774
                   Championships/Events           103           111           120
               Supplies and samples               603           414           616
               Commissions                      1,406           450           995
               Prepaid tour costs                 346           207           284
               Insurance                          170           218           280
               Other                              688           385           539
                                               ------        ------        ------
                                               $5,426        $2,616        $4,690
                                               ======        ======        ======
</TABLE>


NOTE 6:       Deferred sales consist of shipped uniform and accessory
              finished goods that have not been invoiced. It is the policy of
              the Company to reflect the sale in the financial statements during
              the month in which the finished goods are shipped to the customer,
              but not to invoice the sale until the customer's entire order has
              been shipped.

NOTE 7:       The Company has a $9,000,000 bank line of credit which expires
              on June 30, 1997. No balances were outstanding under the agreement
              as of March 31, 1997, December 31, 1996, or March 31, 1996. The
              agreement requires that the Company maintain certain financial
              ratios and maintain a minimum tangible net worth. The line bears
              interest at the lower of prime or LIBOR plus 1%.

NOTE 8:       Income taxes have been provided based on the estimated annual
              effective tax rates for the periods.

NOTE 9:       For the three months ended March 31, 1997 and 1996, net income
              per share calculations are based upon weighted average common and
              equivalent shares outstanding totaling 4,732,000 and 4,705,000,
              respectively.

NOTE 10:      In February 1997, the Financial Accounting Standards Board issued 
              Statement of Financial Accounting Standards No. 128, "Earnings
              per Share" ("SFAS 128"). This statement simplifies the standards
              for computing earnings per share ("EPS") previously found in APB
              Opinion No. 15, "Earnings per Share" as the presentation of
              primary and fully-diluted EPS is replaced with Basic and Diluted 
              EPS. Basic EPS excludes dilution and is computed by dividing 
              income available to common stockholders by the weighted average 
              number of common shares 



                                        8

<PAGE>   9


VARSITY SPIRIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              outstanding for the period. Diluted EPS reflects the potential
              dilution that could occur if securities or other contracts to
              issue common stock were exercised or converted into common stock
              or resulted in the issuance of common stock that then shared in
              the earnings of the entity.

              SFAS 128 is effective for financial statements issued for periods
              ending after December 15, 1997, and applies to entities with
              publicly-held common stock or potential common stock. The Company
              will adopt SFAS 128 in the financial statements issued for the
              year ended December 31, 1997. If the provisions of SFAS 128 had
              been applied to the three months ended March 31, 1997, estimated
              Basic EPS and Diluted EPS would have been $(0.38) and $(0.36),
              respectively.

NOTE 11:      Supplemental cash flow information is as follows:

<TABLE>
<CAPTION>
                                                        Three Months Ended
                                                              March 31,
                                                      1997                1996
                                                      ----                ----
              Cash paid for:                    (In Thousands)
              <S>                                     <C>                <C>
                  Income taxes                        $158               $ 27
                  Interest                            $ --               $ --
</TABLE>

              Non-cash financing activities:
              During the three month periods ended March 31, 1997 and 1996,
              additional paid-in-capital was increased by a reduction in income
              taxes payable of $9,000 and $35,000, respectively, arising from
              the exercise of stock options.

NOTE 12:      On May 5, 1997, the Company, Riddell Sports, Inc., a Delaware 
              corporation ("Riddell"), and Cheer Acquisition Corporation, a
              Tennessee corporation and a wholly owned subsidiary of Riddell
              (the "Merger Sub"), entered into an Agreement and Plan of Merger
              (the "Merger Agreement") pursuant to which Merger Sub will offer
              to purchase all outstanding shares of common stock, par value
              $0.01 per share, of the Company (the "Shares") at $18.90 per
              share, net to the seller in cash (the "Offer Price"). In addition
              to various conditions, the offer is subject to the receipt of
              tenders of a majority of the outstanding shares on a
              fully-diluted basis. Pursuant to the Merger Agreement, as soon as
              practicable after the completion of the offer and satisfaction or
              waiver of all conditions, the Merger Sub will be merged with and
              into the Company (the "Merger") with the Company surviving the
              Merger as a wholly owned subsidiary of Riddell (the "Surviving
              Corporation"). At the time at which the Merger is consummated
              (the "Effective Time"), each Share then outstanding (other than
              Shares held in treasury of the Company, Shares held by Riddell,
              the Merger Sub or any other wholly owned subsidiary of Riddell
              and Shares held by the stockholders of the Company who exercise
              their dissenters' rights, if any, under the Tennessee Business
              Corporation Act) will be converted into the right to receive the
              Offer Price in cash.

              In connection with the Merger Agreement, the Company has agreed to
              prepay in full the Term Note issued to United Special Events, Inc.
              ("USE") in connection with the purchase by the Company's wholly
              owned subsidiary, Varsity USA, Inc. of the spirit camp business of
              USE. Under the terms of the Term Note, USE has the right to
              convert the entire $600,000 principal amount of the Term Note into
              shares of Common Stock of the Company at a conversion price of
              $14.97 per share.

                                        9
<PAGE>   10


PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


GENERAL

         Varsity Spirit Corporation (the "Company") sells products and services
to the school spirit industry. The Company designs and markets cheerleader,
dance team, and booster club uniforms and accessories and operates secondary
school, high school, and college cheerleader and dance team camps. The Company
promotes its products and services, as well as the school spirit industry, by
organizing and producing various nationally televised cheerleading and dance
team championships and other special events. Since its December 1994 acquisition
of Intropa USA, the Company has also operated a tour business that organizes
group travel tours within the United States and abroad, including tours for
school spirit groups. In May 1996, through its subsidiary, Varsity USA, Inc.
("USA"), the Company purchased the camp business of United Special Events, Inc.,
a California-based company with a strong position in the western region of the
United States, to complement the Company's existing camp operations.

         The business and results of operations of the Company are highly
seasonal. The Company's cheerleader and dance team camps are held almost
exclusively in the summer months. Sales of the Company's cheerleader, dance
team, and booster club uniforms and accessories primarily occur prior to the
beginning of the school year. Most of the group travel tours are planned around
performance events held in November, December and January; therefore, the
revenues from the Company's travel tour activities are also seasonal.
Accordingly, a substantial portion of the Company's annual revenues and all of
the Company's net income have historically been generated in the Company's
quarters ending June 30 and September 30.

         On May 5, 1997, the Company, Riddell Sports, Inc., a Delaware
corporation ("Riddell"), and Cheer Acquisition Corporation, a Tennessee
Corporation and a wholly owned subsidiary of Riddell (the "Merger Sub"), entered
into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which
Merger Sub will offer to purchase all outstanding shares of common stock, par
value $0.01 per share, of the Company (the "Shares") at $18.90 per share, net to
the seller in cash ( the "Offer Price"). In addition to various conditions, the
offer is subject to the receipt of tenders of a majority of the outstanding
Shares on a fully diluted basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Liquidity and Capital Resources
-- Subsequent Events" and Item 6 (B) Reports on Form 8-K, below.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996

REVENUES

         Total revenues increased 30.0% to $8.3 million in the three months
ended March 31, 1997 from $6.4 million in the three months ended March 31, 1996.

         Revenues from the sale of uniforms and accessories increased by 23.6%
to $2.8 million in the three months ended March 31, 1997 from $2.3 million in
the three months ended March 31, 1996. This increase was primarily attributable
to a strong increase in campwear and accessories sales at the Company's annual
championship events for college cheerleading and dance, high school
cheerleading, high school dance and all-star.

                                       10

<PAGE>   11


PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         Camp and event revenues increased by 33.5%, to $5.5 million in the
three months ended March 31, 1997, from $4.1 million in the three months ended
March 31, 1996. This increase was primarily attributable to $967,000 of
additional championships and special events revenues associated with the USA
camp business acquired in May 1996, combined with a current period increase in
the number of participants at each of the college cheerleading and dance, high
school dance and the all-star championships.

GROSS PROFIT

         Gross profit increased by 49.9% to $2.6 million in the three months
ended March 31, 1997 from $1.7 million in the three months ended March 31, 1996.

         Gross profit from the sale of uniforms and accessories as a percentage
of such sales increased to 29.1% in the three months ended March 31, 1997 from
28.9% in the three months ended March 31, 1996. This increase is primarily due
to the increase in campwear and accessories sales at the Company's national
championships, which have slightly higher margins than the Company's other
purchased product lines.

         Gross profit margins associated with camps and special events as a
percentage of such sales increased to 31.4% in the three months ended March 31,
1997 from 25.2% for the three month period ended March 31, 1996. The gross
profit margins were positively impacted by the higher gross profit margins
realized by the championships and special events associated with the recently
acquired USA camp business, as compared to the Company's other such events.
Further, economies of scale were realized by spreading the Company's related
fixed costs over a larger revenue base.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses in the three months ended
March 31, 1997 were $5.5 million as compared to $4.3 million in the three months
ended March 31, 1996. Selling, general and administrative expenses as a
percentage of sales decreased to 65.4% for the three months ended March 31, 1997
from 66.2% in the three months ended March 31, 1996, primarily due to the
economies of scale realized by spreading all of the Company's administrative
costs over a greater revenue base. The increase of $1.2 million in selling,
general and administrative expenses was primarily due to increases of $660,000
in payroll and personnel costs, including $63,000 in additional selling
commissions and related expenses, and $185,000 attributable to USA personnel.
There were also increases of $259,000 of operating costs (excluding payroll)
incurred by USA, and $65,000 associated with equipment repairs. Additional
depreciation expense of $76,000, primarily relating to recent acquisitions of
computer equipment and software, also contributed to the increase.

NET LOSS

         The net loss increased 13.7% to $1.7 million for the three months ended
March 31, 1997 as compared to $1.5 million in the same period last year. The
increase in the loss is primarily attributable to an increase of $1.2 million in
operating costs, partially offset by an increase of $850,000 in gross profit.
The net loss per share for the period was $0.36 as compared to $0.32 for the
same period last year.


                                       11

<PAGE>   12


PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

              As of March 31, 1997, the Company's current assets had decreased
by 11.4% to $22.2 million from $25.1 million as of December 31, 1996, and the
Company's current liabilities had decreased 8.6% to $6.4 million as of March 31,
1997, as compared to $7.0 million as of December 31, 1996. The related decrease
of $2.3 million in working capital is principally attributable to the seasonal
loss from first quarter operations, the purchase of $496,000 of equipment and
software, and the payment of approximately $251,000 in cash dividends. As of
March 31, 1997, the Company's cash position decreased compared to December 31,
1996, primarily due to cash used to fund the Company's first quarter operations,
which have historically have resulted in a net loss, as well as the seasonal
buildup of inventory and prepaid expenses and the aforementioned capital
expenditures and cash dividends.

         Cash used by operating activities during the three months ended March
31, 1997 increased $3.1 million from the three month period ended March 31,
1996. This decrease was due partially to an increase in the net loss to $1.7
million in the three months ended March 31, 1997 from $1.5 million in the three
months ended March 31, 1996. A change in the timing of the receipt of customer
deposits for the Company's national championship competitions accounted for a
large portion of the $1.3 million decrease in customer deposits. The remainder
of the change in cash used by operating activities during the three months ended
March 31, 1997 as compared to the same period in 1996 is primarily due to the
following: a decrease of $480,000 in accruals (primarily compensation and
payroll taxes); $300,000 related to increases in inventory levels, related to
the increased sales volume, as compared to 1996; increases of $392,000 in
prepaid expenses, primarily prepaid sales commissions and salesperson samples,
as compared to 1996; and increases of 263,000 in other long-term operating
assets, primarily salesperson samples, as compared to 1996.

         Cash used by investing activities in the three months ended March 31,
1997 decreased $185,000 from the three month period ended March 31, 1996. This
decrease was attributable to a $185,000 decrease in the level of capital
expenditures.

         Cash flows used by financing activities in the three months ended March
31, 1997 included the payment of quarterly cash dividends totaling $251,000
which was offset in part by proceeds of $35,000 received from the exercise of
employee stock options.

         Because of the seasonality of its operating cycle, the Company's
working capital needs are highest in the quarter ended March 31 (during which
the Company generates only nominal revenues) and in the months of April and May
(during which the Company generates only nominal revenues and incurs substantial
prepaid expenses as it prepares for the approaching business season). In recent
years, any outstanding borrowings that have been incurred under the Company's
line of credit during these periods has been subsequently eliminated in the
quarter ended June 30 as the Company receives prepayments on camp tuition and
fees.

         As of March 31, 1997, the Company's current assets increased by 18.9%
to $22.2 million from $18.7 million as of March 31, 1996. The Company's current
liabilities increased by 18.8% to $6.4 million as compared to $5.4 million as of
March 31, 1996. The 18.9% improvement in the Company's working capital position
from March 31, 1996 to March 31, 1997 is attributable to an increase of $1.2
million in cash; an increase of $497,000 in accounts receivable related to the
increased sales volume; an increase of $793,000 in inventory related to the
increased sales volume; and an increase of $736,000 in prepaid expenses, mostly
related to prepaid selling commissions and salesperson samples. This increase
was partially offset by an increase of $326,000 in accounts payable and an 
increase of $462,000 in customer deposits related to the upcoming summer camp 
season.


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<PAGE>   13




         Historically, the Company's primary source of liquidity has been cash
flow generated from its operations. The Company also currently has a line of
credit that provides for seasonally adjusted borrowings of up tp $9,000,000, of
which none was outstanding as of March 31, 1997. Borrowings under the line of
credit bear interest at the lower of prime or LIBOR plus 100 basis points. The
line of credit is unsecured, but the Company has agreed not to subordinate the
line of credit to future debt obligations. The agreement also requires the
Company to maintain certain financial ratios and to maintain a minimum tangible
net worth.

         As a result of the acquisition in May 1996 of the camp business of USA,
the Company issued a $600,000 five-year, 8% note payable. The note payable
provides for a conversion feature whereby the holder could choose to receive a
number of shares of Company common stock as determined using the average of the
closing market prices of the Company's stock in the twenty days prior to the
acquisition.

         Although the Company periodically evaluates business expansion
opportunities, the Company currently has no commitments to make material
additional capital expenditures.

SUBSEQUENT EVENTS

         On May 5, 1997, the Company, Riddell Sports, Inc., a Delaware
corporation ("Riddell"), and Cheer Acquisition Corporation, a Tennessee
corporation and a wholly owned subsidiary of Riddell (the "Merger Sub"),
entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant
to which Merger Sub will offer to purchase all outstanding shares of common
stock, par value $0.01 per share, of the Company (the "Shares") at $18.90 per
share, net to the seller in cash (the "Offer Price"). In addition to various
conditions, the offer is subject to the receipt of tenders of a majority of the
outstanding shares on a fully diluted basis. Pursuant to the Merger Agreement,
as soon as practicable after the completion of the offer and satisfaction or
waiver of all conditions, the Merger Sub will be merged with and into the
Company (the "Merger") with the Company surviving the Merger as a wholly owned
subsidiary of Riddell (the "Surviving Corporation"). At the time at which the
Merger is consummated (the "Effective Time"), each Share then outstanding (other
than Shares held in treasury of the Company, Shares held by Riddell, the Merger
Sub or any other wholly owned subsidiary of Riddell and Shares held by the
stockholders of the Company who exercise their dissenters' rights, if any, under
the Tennessee Business Corporation Act) will be converted into the right to
receive the Offer Price in cash.

         In connection with the Merger Agreement, the Company has agreed to
prepay in full the Term Note issued to United Special Events, Inc. ("USE") in
connection with the purchase by the Company's wholly owned subsidiary, Varsity
USA, Inc. of the USE spirit camp business. Under the terms of the Term Note, USE
has the right to convert the entire $600,000 principal amount of the Term Note
into shares of Common Stock of the Company at a conversion price of $14.97 per
share.

FORWARD LOOKING STATEMENTS

         Certain statements in this Form 10-Q and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases and in oral statements made by an authorized executive officer
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These statements may include projections of revenues,
income or losses, capital expenditures, plans for future operations, financing
plans or requirements, and plans relating tp products or services of the
Company, as well as assumptions related to the foregoing.

         Any forward-looking statements made by the Company are subject to known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to differ materially from
any future results, performance or achievements expressed or implied by the
forward-looking statements. The known risks, uncertainties and other factors
include, among others, the following: the continuing popularity of school spirit
programs in the youth, junior high, high school and college markets; the ability
of the Company to adequately anticipate the changing tastes and requirements of
its 



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<PAGE>   14

customers; the highly seasonal nature of the Company's operations; the
success of the Company's competitors in sponsoring spirit camps and selling
uniforms and other accessories; the ability of the Company to secure desirable
camp locations and camper accommodations at competitive prices; and the ability
of the Company to conduct its camps and events safely and to minimize the
incidents of personal injury.

IMPACT OF INFLATION

         Management does not believe that inflation has a material impact on the
Company's results of operations. Management believes that it is able to reflect
inflationary cost increases in its prices to customers.

NEW ACCOUNTING PRONOUNCEMENT

         In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). This statement simplifies the standards for computing earnings per share
("EPS") previously found in APB Opinion No. 15, "Earnings per Share" as the
presentation of primary and fully-diluted EPS is replaced with Basic and Diluted
EPS. Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.

         SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, and applies to entities with publicly-held
common stock or potential common stock. The Company will adopt SFAS 128 in the
financial statements issued for the year ended December 31, 1997. If the
provisions of SFAS 128 had been applied to the three months ended March 31,
1997, estimated Basic EPS and Diluted EPS would have been $(0.38) and $(0.36),
respectively.


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<PAGE>   15





VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
PART II: OTHER INFORMATION

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to the security holders for voting during the
three months ended March 31, 1997.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

A. EXHIBITS

         27   Financial Data Schedule (for SEC use only).

B. REPORTS ON FORM 8-K

         On May 12, 1997, the Company filed a Current Report on Form 8-K
         reporting that on May 5, 1997 the Company, Riddell Sports, Inc., a
         Delaware corporation ("Riddell"), and Cheer Acquisition Corporation, a
         Tennessee corporation and a wholly owned subsidiary of Riddell (the
         "Merger Sub"), entered into an Agreement and Plan of Merger (the
         "Merger Agreement") pursuant to which Merger Sub will offer to purchase
         all outstanding shares of common stock, par value $0.01 per share, of
         the Company (the "Shares") at $18.90 per share, net to the seller in
         cash (the "Offer Price"). In addition to various conditions, the offer
         is subject to the receipt of tenders of a majority of the outstanding
         Shares on a fully diluted basis. Pursuant to the Merger Agreement, as
         soon as practicable after the completion of the offer and satisfaction
         or waiver of all conditions, Merger Sub will be merged with and into
         the Company (the "Merger") with the Company surviving the Merger as a
         wholly owned subsidiary of Riddell (the "Surviving Corporation"). At
         the time at which the Merger is consummated (the "Effective Time"),
         each Share then outstanding (other than Shares held in treasury of the
         Company, Shares held by Riddell, the Merger Sub or any other wholly
         owned subsidiary of Riddell and Shares held by stockholders of the
         Company who exercise their dissenters' rights, if any, under the
         Tennessee Business Corporation Act) will be converted into the right to
         receive the Offer Price in cash. Pursuant to a shareholders agreement
         (the "Shareholders Agreement"), dated as of May 5, 1997, by and among
         certain shareholders of the Company (the "Shareholders"), Riddell and
         Merger Sub, the Shareholders have agreed to tender 1,738,530 Shares
         representing approximately 38% of the outstanding Shares of the Company
         at the Offer Price and in accordance with the terms and conditions of
         the Offer.



                                       15

<PAGE>   16


PART II: SIGNATURES
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                    Varsity Spirit Corporation
                                            (Registrant)



Date     05/14/96                     By       /S/ Jeffrey G. Webb
                                               ------------------------------  

                                               Jeffrey G. Webb
                                               Chairman, President, and Chief
                                               Executive Officer


Date     05/14/96                     By       /S/ John M. Nichols
                                               ------------------------------

                                               John M. Nichols
                                               Senior Vice President and Chief
                                               Financial Officer






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