Although it has raised more than $41 million from private investors, Varsitybooks.com has filed a preliminary prospectus with the Securities & Exchange Commission outlining its plans to raise approximately $75 million through an initial public offering. The company will use the proceeds to help fund its plan to build the Varsitybooks. com brand name, raise its marketing and sales budget, increase its offerings to include such items as entertainment products, apparel and supplies as well as for possible acquisitions.
Varsitybooks reported that its goal is to become the leading online retailer and the most effective marketing channel to college students. To that end, in addition to selling more products than books, the company intends to make its site available to other businesses that want to reach college students. With its ambitious growth plans, Varsitybooks said the proceeds from the offering together with currently available funds will be enough to meet its needs for the next 12 months.
The company began selling textbooks through its Web site in August 1998; it had net sales of $132,000 for the year ended December 31, 1998, with a net loss of $2.4 million. For the first eight months of 1999, the online retailer had sales of $5.1 million, compared to $42,000 in the same period in 1998. Its net loss increased to $13.8 million from $615,000. As of August 31, 1999, Varsitybooks had an accumulative deficit of approximately $16.2 million, and like most Internet companies, it expects to incur operating losses for the foreseeable future.
The prospectus reflects Varsitybooks' rapid business development. Marketing and sales expenses increased to $8.8 million for the eight months ended in August, from $99,000 in the 1998 period. The jump was due to the expansion of the company's online and offline advertising activities (which rose to $5.4 million from $76,000) and of its network of student representatives and partnership programs. Product development expenses increased to $1.9 million from $185,000 due mainly to increased staffing and other costs related to enhancing Varsitybooks' Web site. General and administrative expenses rose to $1.8 million from $109,000, which the company attributed primarily to the hiring of additional personnel and increased professional services expenses.
Another sign of the company's rapid growth is the increase in the number of its employees. As of September 30, 1999, Varsitybooks had 97 full-time employees, compared to 20 at the beginning of the year, while the number of student reps rose to approximately 1000 from 300 in January.
The prospectus also shows Varsitybooks' close ties to Baker & Taylor, which currently owns a 26% stake in the company. Under an agreement signed October 1, Varsitybooks will use B&T as its principal supplier, and B&T has agreed not to provide direct-to-consumer fulfillment services for any company in competition with Varsitybooks.
