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As filed with the Securities and Exchange Commission on May 3, 2004

Registration Number 333-113257

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

PRE-EFFECTIVE AMENDMENT NO. 4
TO
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Alibris, Inc.
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

5960
(Primary Standard Industrial
Classification Code Number)

94-3300447
(I.R.S. Employer
Identification Number)

Alibris, Inc.
1250 45^th Street, Suite 100
Emeryville, California 94608
(510) 594-4500
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)

Martin J. Manley
President and Chief Executive Officer
Alibris, Inc.
1250 45^th Street, Suite 100
Emeryville, California 94608
(510) 594-4500
(Name, address, including zip code, and telephone number, including area code, of agent for service)

*Copies to:*
Samuel B. Angus, Esq. Robert A. Freedman, Esq. William L. Hughes, Esq. Kathleen Kehoe Greeson, Esq. Michael J. Hopp, Esq. FENWICK & WEST LLP 275 Battery Street, 15^th Floor San Francisco, California 94111 (415) 875-2300		Larry W. Sonsini, Esq. Matthew W. Sonsini, Esq. Clay B. Simpson, Esq. WILSON SONSINI GOODRICH & ROSATI Professional Corporation 650 Page Mill Road Palo Alto, California 94304 (650) 493-9300

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.o

CALCULATION OF REGISTRATION FEE

Title of Each Class Of Securities To Be Registered	Amount To Be Registered(1)	Proposed Maximum Price Per Unit	Proposed Maximum Aggregate Offering Price(2)	Amount of Registration Fee(3)


Common Stock, $.00001 par value per share	2,875,000	$14.00	$40,250,000	$5,100

(1): Includes shares of common stock issuable upon exercise of underwriters' over-allotment option, if any
(2): Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(c) under the Securities Act of 1933.
(3): $3,168 has been previously paid by the Registrant in connection with the filing of the Registration Statement on March 3, 2004.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

SUBJECT TO COMPLETION, DATED MAY 3, 2004

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission
is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Alibris, Inc.
2,500,000 Shares
of Common Stock



This is our initial offering of our shares to the public, and no public market currently exists for our shares. We expect that the public offering price will be between $10.00 and $14.00 per share.
THE OFFERING	PER SHARE		TOTAL
Public Offering Price	$	$
Underwriting Discount	$	$
Proceeds to Alibris	$	$
We have granted the underwriters the right to purchase up to 375,000 additional shares from us within 30 days after the date of this prospectus to cover any over-allotments. The underwriters expect to deliver shares of common stock to purchasers on , 2004.
Proposed NASDAQ National Market Symbol: ALBR
OpenIPO®: The method of distribution being used by the underwriters in this offering differs somewhat from that traditionally employed in firm commitment underwritten public offerings. In particular, the public offering price and allocation of shares will be determined primarily by an auction process conducted by the underwriters and other securities dealers participating in this offering. A more detailed description of this process, known as an OpenIPO, is included in "Plan of Distribution" beginning on page 85.

This offering involves a high degree of risk. You should purchase shares only if you can afford a complete loss of your investment. See "Risk Factors" beginning on page 8.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Pacific Growth Equities, LLC

The date of this prospectus is , 2004

TABLE OF CONTENTS

Prospectus Summary		3
The Offering		5
Summary Financial Data		6
Risk Factors		8
Special Note Regarding Forward-Looking Statements		21
Other Notes Regarding Information Contained in this Prospectus		21
Use of Proceeds		22
Dividend Policy		22
Capitalization		23
Dilution		24
Selected Financial Data		26
Management's Discussion and Analysis of Financial Condition and Results of Operations		28
Business		47
Management		58
Certain Relationships and Related Transactions		72
Principal Stockholders		75
Description of Capital Stock		78
Shares Eligible for Future Sale		82
Plan of Distribution		85
Legal Matters		92
Experts		92
Change in Independent Accountants		92
Where You Can Find More Information		93
Index to Financial Statements		F-1

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed information regarding our company and the common stock being sold in this offering and our consolidated financial statements and the notes to those statements appearing elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully.

Alibris, Inc.

Alibris operates an online marketplace for used and hard-to-find books. We connect an international network of over 5,000 independent professional booksellers with retail and business customers from around the world. Our booksellers value the broad distribution, specialized inventory management and logistics that help them to increase their sales. Our customers value the ability to quickly select from over 40 million used and hard-to-find books.

We generate revenue by selling books through multiple sales channels. Our website, www.alibris.com, provides consumers with one of the largest selections of books on the Internet. Librarians rely on our dedicated library website to meet their special collections and replacement needs. Online and traditional book retailers and wholesalers, including Amazon.com, Barnes&Noble.com and Borders, use us to supply used or hard-to-find books to their customers.

Alibris has developed a proprietary data architecture that enables us to obtain specific and timely information about our market. This allows us to acquire and resell large quantities of low-cost books from retailers, publishers, non-profit organizations and liquidators. We also use this knowledge to create inventory management and pricing services to further assist our sellers in improving their business results.

Additionally, our logistics services enable our distribution system to aggregate supply from thousands of sellers and distribute products through multiple sales channels. This allows us to satisfy the differing logistics needs of our many suppliers and business customers.

Our goal is to be the preferred partner to independent booksellers, the supplier of choice to retailers, and a trusted vendor to consumers and libraries around the world. We believe that our selection, customer base, market intelligence and logistics provide us with opportunities to grow our business, increase revenue and achieve profitability by continuing to implement the following strategies:

•: Increase and diversify our product offerings—by expanding our bookseller network, selectively building our inventory of used, new and hard-to-find books, and continuing to grow our movie and music offerings, sales of which have not been significant to date.
•: Grow revenue through expanding marketing and sales activities—by increasing seller participation in our business customer programs and investing in targeted online marketing and sales campaigns that include keyword purchases and direct e-mail marketing.
•: Leverage our market intelligence and logistics assets—by identifying and purchasing large quantities of books that we believe can be sold quickly and profitably and providing additional services to our sellers.
•: Expand geographic reach—by attracting additional international booksellers, retail customers and business customers through direct marketing efforts and creating local websites for overseas customers.

Any investment in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties related to our business and an investment in our common stock set forth in "Risk Factors," beginning on page 8 of this prospectus.

Alibris was incorporated in California in May 1998. In June 1998, we opened our distribution center in Sparks, Nevada. In November 1998, we began providing an online marketplace for used and hard-to-find books. During our history of operations, we have incurred significant losses and had negative cash flow from operations in each year from our inception through 2003. As of March 31, 2004, we had an accumulated deficit of $79.0 million. We intend to reincorporate in Delaware prior to completion of this offering.

Our principal executive offices are located at 1250 45^th Street, Suite 100, Emeryville, California 94608 and our telephone number is (510) 594-4500. Our website address is www.alibris.com. Information contained on our website should not be considered a part of, nor incorporated into, this prospectus.

The Offering


Common stock offered		2,500,000 shares
Common stock to be outstanding after the offering		8,066,006 shares
Use of proceeds		To grow our product supply, expand marketing and sales, invest in our technology and operations infrastructure, and for working capital and general corporate purposes. See "Use of Proceeds."
Proposed NASDAQ National Market symbol		ALBR

Except for the financial statements, related financial statement schedule, and notes thereto beginning on page F-1 and as otherwise noted, all information in this prospectus (1) gives effect to the conversion of all outstanding shares of preferred stock into 4,012,287 shares of common stock upon the closing of the offering, (2) assumes the completion of our reincorporation from California to Delaware prior to the closing of the offering and (3) assumes no exercise of the underwriters' over-allotment option. The number of shares of common stock to be outstanding after this offering is based on 5,566,006 shares outstanding as of March 31, 2004 and gives effect to a one-for-six reverse stock split to be effected prior to the completion of this offering in connection with our reincorporation in Delaware. This number does not include the following:

•: 214,198 shares of common stock subject to outstanding options as of March 31, 2004 at a weighted average exercise price of $1.6359 per share;
•: 185,849 shares of common stock issuable upon exercise of outstanding warrants as of March 31, 2004 at a weighted average exercise price of $28.41 per share;
•: 1,875,927 shares of common stock reserved for future grant or issuance under our 1998 stock option plan, 2000 equity incentive plan, 2004 equity incentive plan and 2004 employee stock purchase plan;
•: any shares of common stock automatically reserved for issuance under our 2004 employee stock purchase plan, as more fully described in "Management—Employee Benefit Plans and Option Grants;" and
•: up to 375,000 shares issuable upon exercise of the underwriters' over-allotment option at an assumed initial public offering price of $12.00 per share.

This offering will be made through the OpenIPO process, in which the allocation of shares and the public offering price are primarily based on an auction in which prospective purchasers are required to bid for the shares. This process is described under "Plan of Distribution."

Summary Financial Data

The following table sets forth summary, pro forma and other financial information of Alibris. This summary should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes contained elsewhere in this prospectus.

	Year Ended December 31,									Three Months Ended March 31,
	2001			2002			2003			2003			2004
	(in thousands, except per share data)
Statements of Operations Data:
Total revenue	$	20,969		$	31,044		$	45,456		$	10,350		$	13,830
Cost of product revenue		15,103			23,338			36,782			8,563			11,144
Gross profit		5,866			7,706			8,674			1,787			2,686
Operating loss		(14,106	)		(7,148	)		(4,729	)		(1,444	)		(910	)
Net loss		(13,727	)		(7,234	)		(4,838	)		(1,468	)		(901	)
Accretions on redeemable preferred stock		(5,670	)		(5,944	)		(5,968	)		(1,492	)		(1,528	)
Deemed dividend on Series F preferred stock		—			—			—			—			(2,539	)
Net loss applicable to common stockholders	$	(19,397	)	$	(13,178	)	$	(10,806	)	$	(2,960	)	$	(4,968	)
Net loss per share—basic and diluted(1)	$	(18.53	)	$	(11.61	)	$	(9.21	)	$	(2.55	)	$	(3.59	)
Weighted average shares outstanding—basic and diluted(1)		1,047			1,135			1,173			1,163			1,383
Pro forma net loss per share (unaudited)(2)							$	(1.06	)				$	(0.68	)
Shares used in computing pro forma net loss per share (unaudited)(2)								4,573						5,089

	As of March 31, 2004
	Actual			Pro Forma(3)		Pro Forma As Adjusted(4)
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	3,807		$	3,807	$	30,357
Working capital		3,263			3,263		29,813
Total assets		11,155			11,155		37,705
Total indebtedness		191			191		191
Convertible redeemable preferred stock		88,023			—		—
Total stockholders' equity (deficit)	$	(81,069	)	$	6,954	$	33,504

(1): See note 2 of notes to financial statements.
(2): The pro forma net loss per share is computed using the weighted average number of shares of common stock outstanding, including the pro forma effects of the automatic conversion of our Series A, B, C, D, E and F preferred stock into shares of our common stock effective upon the closing of this offering as if such conversion occurred at the beginning of the period, or at the date of issuance, if later, and a decrease in net loss attributed to common stockholders for the

accretions on redeemable preferred stock. The net loss applicable to common stockholders and the shares used in calculating the pro forma net loss per share is as follows:

			Year Ended December 31, 2003			Three Months Ended March 31, 2004
			(in thousands, except per share data)
	Net loss applicable to common stockholders		$	(10,806	)	$	(4,968	)
	Accretions on redeemable preferred stock			5,968			1,528

		Pro forma net loss applicable to common stockholders	$	(4,838	)	$	(3,440	)

	Weighted average common shares outstanding			1,173			1,383

	Plus weighted average preferred shares outstanding:
	Series A (conversion rate of 1 to 4)			694			694
	Series B (conversion rate of 1 to 1.13)			786			786
	Series C (conversion rate of 1 to 1.14)			264			264
	Series D (conversion rate of 1 to 1.16)			880			880
	Series E (conversion rate of 1 to 1)			776			776
	Series F (conversion rate of 1 to 1)			—			306

Total weighted average preferred shares outstanding (as converted)				3,400			3,706

Total weighted average shares outstanding used in computing pro forma net loss per share				4,573			5,089

Pro forma net loss per share			$	(1.06	)	$	(0.68	)

(3): The pro forma balance sheet data gives effect to the conversion of all outstanding shares of preferred stock into shares of common stock effective upon the closing of this offering. The pro forma balance sheet data does not give effect to the offering proceeds.
(4): The pro forma as adjusted information above gives effect to our receipt of the estimated net proceeds from the sale of 2,500,000 shares of common stock in this offering by us at the assumed public offering price of $12.00 per share after deducting $1.95 million in estimated underwriting discounts and commissions and $1.5 million in estimated offering expenses payable by us.

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding whether to invest in shares of our common stock. If any of the following risks actually materialize, our business, financial condition and results of operations would suffer. In this case, the trading price of our common stock would likely decline and you might lose all or part of your investment in our common stock.

Risks Related to Our Business and Industry

We have a history of significant losses and have not yet achieved profitability. If we continue to sustain losses, the trading price of our common stock could decline and our business might fail.

We have incurred net losses each year since the formation of our business in May 1998, and have not yet achieved profitability. We had a net loss of $4.8 million and negative cash flow for the year ended December 31, 2003, and a net loss of $0.9 million and negative cash flow for the three months ended March 31, 2004. As of March 31, 2004, we had an accumulated deficit of $79.0 million. We expect to increase our cost of revenue or expenses significantly to:

•: grow our supply of books;
•: expand our marketing and sales activities;
•: promote our services to booksellers;
•: invest in our technology and operations infrastructure;
•: access international markets; and
•: expand our product categories.

We may not generate sufficient revenue to offset these expenditures and our losses might be greater than the losses we would incur if we developed our business more slowly. As a result, we may incur significant operating losses and may be unable to achieve or maintain profitability. If we continue to sustain losses, the trading price of our common stock could decline and our business might fail.

Our quarterly and annual revenue and operating results have and are expected to fluctuate in future periods and may fail to meet expectations, which may reduce the trading price of our common stock.

Forecasting our future revenue and operating results with precision is a difficult task. If our operating results fail to meet expectations, the trading price of our common stock would decline. Our results of operations have fluctuated significantly in the past and we anticipate that these results will fluctuate significantly in the future as a result of a variety of factors, including price pressures in the market for used and hard-to-find books, the relative sales mix across segments and supply sources, the timing of expansion or infrastructure-related operating costs and capital expenditures and other risks discussed in this Risk Factors section. As a result, it is likely that in some future quarters or years our results of operations will fall below the expectations of securities analysts or investors, which would cause the trading price of our common stock to decline. We believe that period-to-period comparisons are not necessarily indicative of our future performance.

Competition from other online and traditional booksellers, including some of our largest business customers, and from new book formats or distribution methods could make it difficult for us to operate successfully.

We currently derive substantially all of our revenue from the sale of books on our website and the websites of our business customers, and our business depends on increasing revenue from the sale of books. The selling environment in this market is highly competitive, particularly on the Internet. We

must continue to attract and retain retail and business customers, and successfully encourage our retail customers to make repeat purchases, to compete in this environment. If we fail to attract and retain customers our revenue will decline. Some of our largest business customers, such as Amazon.com and Barnes&Noble.com, maintain on their websites a market for used and hard-to-find books not supplied by Alibris. If any of our other business customers internally develop their own offerings of used and hard-to-find books, they could directly compete with us as well.

We principally compete with a variety of Internet and specialty retailers that offer products similar to or the same as our books. Many of our traditional and online competitors have longer operating histories, larger customer or user bases, greater brand recognition and significantly greater resources and bargaining power. In addition, large, well-established or well-financed entities may become, or join with other, online competitors in the future. Our competitors may be able to offer lower prices, fulfill orders more efficiently and achieve greater market acceptance than we can.

In addition, new or currently unconventional book formats and means of distribution could lower demand and margins in the market for used and hard-to-find books and undermine any competitive advantages we may have. If new formats, such as e-books, become popular among consumers, second-hand books might lose their appeal, reducing our sales activity. Consumers could also prefer an electronically formatted or delivered title over a new or used one. If a broad selection of titles becomes available for electronic distribution and consumers adopt these new means of obtaining books, any of our current strategic advantages could become less valuable and others would be able to more effectively compete with us.

If we are unable to maintain or increase our market share or compete effectively, our revenue will decline. Please refer to "Business—Competition" for more detailed information about our competitors.

If we fail to remedy certain "material" weaknesses in our internal controls cited by our independent auditors, our business may suffer.

We have received a letter from our independent auditors advising that they consider us to have "reportable conditions that are also considered to be material weaknesses," in our internal financial systems and controls that could, if not remedied, affect our ability to record, process and report financial data. The letter from our independent auditors noted four specific material weaknesses:

•: Our existing system of recording accrued liabilities does not provide a trial balance by vendor and does not tie to our general ledger, so an accurate balance of accrued liabilities on a monthly basis is not available for monitoring payment requirements. Because this could cause us to understate or overstate expenses and accounts payable, our auditors recommended strengthening controls over accrued accounts payable by generating a trial balance of accrued liabilities by vendor reconciled to our general ledger on a monthly basis. We have modified our systems to implement this recommendation and currently generate and analyze the recommended trial balance and reconcile it to our general ledger balance on a monthly basis.
•: The same accounts payable personnel who are responsible for originating and processing disbursements under $10,000 for payment have custody of a computerized signature plate for check signing, which could give rise to the possibility of undetected errors or misappropriation of cash. Because this could lead to misappropriation of funds, our auditors recommended that check signing authority and custody of unused checks be assigned to personnel other than the above-noted accounts payable personnel. We have implemented this recommendation.
•: Customer payments received and credits issued are not always applied to a specific invoice, which distorts the aging of accounts receivable and reduces its usefulness for analyzing and monitoring customer accounts, and has caused accounts receivable for libraries not to be reconciled on a timely basis. Because this could cause us to overstate accounts receivable and understate bad debt

expense, our auditors recommended that we take steps to ensure that customer payments received and credits issued are applied to a specific invoice. Although cash received from customers is deposited daily and applied to customer balances, some of our large business customers do not provide us with timely reports of specific payment and returned item details. As recommended by our auditors, we continue to work with our business customers to obtain more timely payment details, but we cannot rely on their systems and processes to consistently meet our requirements. Additionally, credit memos for our library customers must be manually prepared due to limitations in our current accounting system. Automated credit memos for our library customers will be a requirement of the new general ledger system that we intend to implement in 2005.

•: Our accounts receivable aging reports are prepared manually using spreadsheet software, which lowers the efficiency of our accounting department in generating an accurate accounts receivable aging report and hinders the collection of accounts receivable. Because this could cause us to overstate accounts receivable and understate bad debt expense, our auditors recommended that we adopt an automated accounting system that could generate accounts receivable aging reports directly and tie them to the general ledger. We will require automated aging reports from our new general ledger system that we intend to implement in 2005.

The third and fourth concerns noted above will likely be noted again in the 2004 audit. Our audit committee and executive officer group have reviewed and discussed the auditors' letter and our responses to the letter.

As noted above, we have implemented the first two of our auditors' four recommendations and intend to implement the remaining two by the end of 2005. We have started to develop system requirements and expect to select financial systems vendors and consultants by the end of 2004. We expect to upgrade our financial systems to address our auditors' third and fourth recommendations during the third quarter of 2005, and to test these new systems while running them parallel with our existing system through the completion of their implementation by the end of 2005. We cannot be certain that these measures will ensure that we maintain adequate controls over our financial processes and reporting in the future. Any failure to implement these new operational and financial systems, procedures and controls, or difficulties encountered in the process of upgrading these systems, could harm our operating results, could cause us to fail to meet our reporting obligations or could cause us to restate our financial statements, any of which could have a negative impact on our business.

Approximately 40% of our total revenue is associated with a few business customers with which we generally have short-term arrangements. If these business customers terminate or decide not to renew their agreements with us, or the terms in our future agreements with them are less favorable to us, our revenue could decline and the trading price of our common stock would fall.

We depend on a few business customers for a significant portion of our revenue. In 2003, revenue from our relationships with Amazon.com and its related entities, Barnes&Noble.com, Books-A-Million, Borders Group Inc., eBay and Half.com by eBay, Indigo/Chapters and Ingram Book Group, accounted for approximately 40% of our total revenue. Barnes&Noble.com and Amazon.com and its related entities accounted for approximately 18% and approximately 14% of total revenue, respectively. Our agreements with these business customers are generally one year or less in duration and some may be terminated without penalty at the customers' convenience with little or no advance notice. We cannot assure you that any of our current major business customers will remain customers in future periods or that our relationships will continue on terms that are favorable to us. Our revenue could decline if we are unable to maintain these relationships or our business customers fundamentally change their approach to us or to the market in which we operate.

It would be difficult to replace any of these major customers, particularly Barnes&Noble.com and Amazon.com and its related entities. If we lose any revenue from these customers, we cannot assure you that we will be able to replace it. In addition, if we were to lose any of our major business customers, any publicity related to the loss of these customers could make it more difficult to attract other business customers.

In addition, we gather pricing information from Amazon.com under its standard web services agreement. If we were unable to gather this price information, due to termination of our business customer relationship or otherwise, we might have difficulty obtaining the same or substantially similar pricing information in the future, which could harm our business. Obtaining information from an alternate source, even if possible, could be costly or subject to unfavorable terms and conditions.

Our operating results depend on the systems and network infrastructure that we, our vendors and our business customers operate. Accordingly, capacity constraints or system failures could lower our revenue and increase our expenses.

Our revenue depends on sales to customers who shop on our websites and sales we make through our business customers. Any system interruptions that result in the unavailability of our websites or those of our business customers or reduce the performance of our or their transaction systems would cause us to lose sales for the period the website is unavailable, reduce the attractiveness of our website to retail customers, harm our reputation with business customers and cause us to lose customers, particularly our business customers for which we believe, in general, reliability is one of their highest concerns. This would cause our revenue to decline. For example, in March 2004, we experienced a system interruption which lasted approximately 36 hours and which we believe caused us to lose revenue and retail customers.

We use a combination of vendor-provided and internally developed systems to operate our business. These systems have experienced, and we expect them to experience in the future, periodic interruptions and delays, and we have lost critical data, due to hardware and software failures, human error and other unanticipated problems. Some of these systems are highly dependent on the continued service of one or a few individuals that have particular knowledge of how they operate. System delays and interruptions and data loss can also result from fire, flood, power loss, telecommunications failure, earthquakes, acts of war or terrorism, acts of God, computer viruses, physical or electronic break-ins, and similar events. We have also experienced and expect to continue to experience temporary capacity constraints due to unexpected, sharply increased activity, which can cause system disruptions, slower response times, degradation in levels of customer service, impaired quality and delays in reporting accurate financial information. Any of these problems could cause our revenue to decline. Our insurance coverage might not adequately compensate us for any loss we may suffer in this regard. We cannot assure you that we will be able in a timely manner to effectively upgrade and expand these systems or to integrate smoothly any newly developed or purchased modules with our existing systems.

In addition, the vendors we use for customer and seller communications, website monitoring and marketing periodically have experienced and will continue to experience system interruptions, which could disrupt our business. Similarly, if our business customers experience system interruptions, our revenues could decline.

If we lose key personnel or are unable to hire additional qualified personnel, or if our management team is unable to perform effectively, we will not be able to implement our business strategy or operate our business effectively.

Our success depends upon the continued services of our executive officers and other key personnel, many of whom would be difficult to replace. The loss of any of these individuals would adversely affect our ability to implement our business strategy and to effectively operate our business.

Except for Martin Manley, our Chief Executive Officer, none of our officers or key employees is bound by an employment agreement. None of our officers or key employees is covered by a "key person" life insurance policy to which we are a beneficiary.

Our success also depends upon our ability to continue to attract, retain and motivate skilled employees. Competition for employees with certain skills in our industry is intense, especially in the San Francisco Bay area. We believe that there are only a limited number of persons with the requisite skills to serve in a few key positions, and it can be difficult to hire, retain and motivate these persons. Additionally, a number of key personnel have developed business relationships and accumulated experience and knowledge of our business that would make their replacement difficult.

We have in the past experienced, and we expect to continue to experience, difficulty in hiring skilled employees with appropriate qualifications. Competitors, business customers and others have in the past attempted, and may in the future attempt, to recruit our employees. We believe that we will be required from time to time to increase salaries, benefits and recruiting expenses because of the challenges of hiring and retaining employees.

Finally, our success depends on the ability of our management to perform effectively, both individually and as a group. As our management team expands and responsibilities change, we will have to successfully integrate new members and existing members will have to accept change. If our management is unable to operate effectively in their respective roles or as a team, we will not be able to implement our business strategy or operate our business effectively.

The value of our inventory may decline due to price erosion and other factors, causing us to record charges against earnings or lose the value of our investment.

Our inventory of owned books could lose value over time as a result of obsolescence and price erosion resulting from an excess supply of books for sale or changes in consumer tastes and book preferences. For example, since our inception, we have written down approximately $2.5 million of our obsolete and slow-moving inventory. We offer a broad selection of books, including books that might take several years to sell or may never sell. Our success in selling books that we purchase or accept for consignment depends on our ability to accurately predict these trends and avoid stocking the wrong amount of any particular title. Demand for books, however, can change quickly and significantly, and it is difficult to accurately forecast the timing and magnitude of these changes. We cannot predict with any certainty whether an item will sell for more than we pay for it. Unexpected reductions in demand or increases in supply of particular titles can cause the value of those titles in our inventory to fall below our cost, which could cause us to lose all or a material portion of our investment in these titles and/or result in our recording charges for obsolete inventory.

Because we experience seasonal fluctuations in our net sales, our quarterly results will fluctuate and our annual performance will be affected by seasonal fluctuations.

We experience seasonality in our business. Our revenue follows a seasonal pattern that we believe is typical of the overall book industry. We have generally had weaker demand in the quarter ending in June when compared to the quarters ending in March, September and December. We expect this pattern to continue. Accordingly, unfavorable economic conditions or lower than normal levels of demand in any of the other quarters could harm our operating results for the entire year. Historically, we have seen these patterns, but we cannot assure you that the results of any particular quarter will follow this pattern. If our revenue during any other quarter were to fall below the expectations of investors or securities analysts, our stock price could decline, perhaps significantly.

Our business results depend in part on our ability to generate customer demand on our websites. If we fail, our sales and profit margins could decrease.

Our success depends, in part, upon our ability to offer a wide range of books that reflect the tastes and preferences of our retail customers and the customers of our business customers. If we do not attract a sufficient number of booksellers or maintain a sufficiently broad selection of marketable books, we might be unable to satisfy the changing tastes of our retail customers or those of our business customers. In addition, we could drive away repeat customers if we establish relationships with booksellers that sell books of poor quality or have unreliable fulfillment capabilities. In addition, to acquire customers, we implement e-mail marketing programs and buy words from Internet search engine companies to ensure that links to our website are displayed. Although these techniques are currently cost-effective, increasing costs could effectively prohibit us from employing them in the future and could cause our revenue to decline.

If we fail to maintain our supply relationships, our revenue will decline.

We currently derive a substantial majority of our revenue from sales associated with our network of independent professional booksellers. In general, our relationships with these booksellers are terminable at will by either party immediately upon notice. We rely upon booksellers to provide an attractive selection of books to our retail and business customers without our having to incur related inventory or book procurement-related expenses. We believe that we attract these booksellers by providing them with a marketplace on our retail websites and a more efficient means of access to our business customers. However, if we fail to meet the expectations of these booksellers, they may decide not to continue to list items for sale with us. If for any reason booksellers decide not to list with us and we cannot replace them with booksellers having comparable offerings, or if we fail to recruit booksellers on a timely basis, we may lose revenue.

To date, we have purchased or consigned books for our inventory held in our distribution center from a relatively small number of suppliers, including retailers, wholesalers, nonprofit organizations, and liquidators who send us their returned, remaindered, overstock, donated, or damaged inventory. In addition, we have a number of arrangements in place that give us rights to acquire those types of books on consignment. While none of these purchase or consignment relationships accounted for 10% or more of our inventory purchases or our revenue in 2003, we depend on these relationships to generate revenue. These suppliers might choose to no longer do business with us if we fail to meet their expectations. In addition, these suppliers might develop in-house solutions to market or otherwise liquidate these books, which could make it more difficult for us to maintain our overall supply of books. If we cannot successfully maintain existing book-supply arrangements, or develop and maintain new ones on favorable terms, our revenues would decline and we might fail.

If our efforts to expand into new business areas are unsuccessful, our inability to generate sufficient revenue to offset the cost of expansion could harm our operating results and lower our cash and cash equivalents.

We expect to expand our operations by making additional investments in our international business or in developing a more efficient marketplace for used and hard-to find movie and music titles. We cannot assure you that our experience and abilities in the market for used and out-of-print books will be applicable to or indicative of our prospects in any new business or market we enter. As we expand our operations internationally or into new product categories, we would also incur additional expenses and require significant development, operations, marketing and editorial resources, which would strain our management, financial and operational resources. Additionally, these new operations could be more costly to maintain than our current operations. The lack of market acceptance of such efforts or our inability to generate satisfactory revenue from such expanded services or products to offset their cost could harm our operating results and lower our cash and cash equivalents.

If we fail to effectively manage our growth, our business may suffer.

Our plans to expand our business will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. Our current and planned personnel, systems and procedures may not be adequate to support and effectively manage our expanded operations. Accordingly, we will have to hire, train, retain, motivate and manage required personnel, and implement new operational and financial systems and procedures. Any failure to implement these new operational and financial systems and procedures could negatively effect our ability to generate revenue. Difficulties encountered in the process of upgrading these systems could increase our costs and expenses and lower our revenue.

Acquisitions may harm our business by being more difficult than expected to integrate or by diverting management's attention.

Although we are not currently a party to any contracts or letters of intent with respect to any acquisitions, in the future we may seek to acquire or invest in businesses or additional products or technologies that we feel could complement or expand our business. If we identify an appropriate acquisition opportunity, we might be unable to negotiate the terms of that acquisition successfully, finance it, or integrate it into our existing business and operations. Further, the negotiation of potential acquisitions, as well as the integration of an acquired business, would divert management time and other resources. We may have to use a substantial portion of our available cash, including proceeds of this offering, to consummate an acquisition and integrate any acquired business. On the other hand, if we consummate acquisitions through an exchange of our securities, our stockholders could suffer significant dilution. In addition, we cannot assure you that any particular acquisition, even if successfully completed, will ultimately benefit our business.

Problems with the operation of our distribution center or other operations could lower our revenue and increase our expenses.

A substantial portion of our revenue flows through our distribution center. Problems with our distribution center could disrupt the flow of order processing, damage our reputation and cause our revenue to decline. In many cases, the services provided by our distribution center are highly complex from a logistical standpoint and seemingly minor breakdowns within our operations could have major implications for our ability to successfully provide these services. Our ability to provide these services may be adversely affected by a number of factors, including inadequate staffing, capacity limitations and dependence on a limited number of shipping companies. In addition, our agreement with our contract labor service provider is on a month-to-month basis. We have a limited ability to re-route orders to third parties for shipping or otherwise counteract any problems that may develop with our distribution center. If for any reason we cannot receive and process inbound inventory in an efficient manner, or cannot ship completed orders cost-effectively and in the manner requested, our retail and business customers might choose not to use our services or buy books through our website, as the case may be, any of which could damage our reputation, increase our costs and cause our revenue and gross margin to decline.

If additional financing becomes necessary, failure to obtain such financing could limit our operations and might cause our business to fail.

We cannot be certain that our cash reserves and any cash flow from operations will be sufficient to finance our anticipated growth. We may need to raise additional funds if:

•: our losses continue;
•: our estimates of revenue or our working capital and/or capital expenditure requirements change or prove inaccurate;

•: we are required to respond to unforeseen technological or marketing hurdles; or
•: we choose to take advantage of current and unanticipated opportunities.

If adequate funds are not available to satisfy either short- or long-term capital requirements, we might be required to limit our operations significantly and our business might fail. We cannot assure you that these funds will be available when required in amounts or on terms we find acceptable, if at all.

Additional financings could disadvantage our existing stockholders and purchasers in this offering.

Should our capital resources become insufficient to meet our future capital requirements and expenses, or for other reasons, we may decide to sell additional equity or debt securities. We cannot assure you that we will be able to obtain additional financing on commercially reasonable terms, if at all. If additional funds are raised through the issuance of equity securities or convertible debt securities, the percentage ownership of our then-current stockholders would be reduced and the value of their investments might decline. In addition, any new securities issued might have rights, preferences or privileges senior to those securities held by our existing stockholders. If we raise additional funds through the issuance of debt, we might become subject to restrictive covenants or high rates of interest, and our assets could become encumbered, which would limit our ability to borrow in the future.

Retail sales outside of the United States and Canada account for approximately 11% of our total revenue, so our business is exposed to risks of international operations to a greater extent than are companies with more domestic sales.

Revenue from outside of the United States and Canada increased as a percentage of total revenue from 9.0% to 11.2% from 2002 to 2003, and we anticipate that such sales will continue to represent a significant percentage of our total revenue in future periods. We expect the amount of revenue and percentage of total revenue represented by these international sales will fluctuate in the future because of the special risks associated with our international operations, such as:

•: the need to develop supplier relationships for foreign titles;
•: unexpected changes in international regulatory requirements and tariffs;
•: difficulties in staffing and managing foreign operations;
•: greater difficulty in collecting overseas accounts receivable;
•: potential adverse tax consequences of foreign sales or operations;
•: costs associated with our current practice of shipping books from overseas sellers to overseas customers living in the same country through our distribution center in Nevada;
•: price controls or other restrictions on foreign currency;
•: complexities in adopting our inventory and other back office systems to other languages and\or character sets; and
•: difficulties in obtaining export and import licenses.

In addition, governments in foreign jurisdictions may regulate e-commerce or other online services in such areas as content, privacy, network security, copyright, encryption, taxation, or distribution. In particular, one or more foreign countries may seek to impose sales or other tax (including value added tax) collection obligations on out-of-jurisdiction companies that engage in e-commerce. For example, the European Union has issued directives that have affected many e-commerce companies, including some of our competitors. Although we believe that this legislation applies to electronic services and electronically supplied services, and accordingly does not apply to our product sales, new directives may affect our product sales in the future. A successful assertion by one or more foreign countries or jurisdictions that we should collect sales or other taxes on the sale of merchandise or services could result in substantial tax liabilities for past sales, decrease our ability to compete and otherwise harm our business.

Fluctuations in the exchange rates of foreign currency, particularly in Europe, may reduce our revenue or increase our costs and expenses.

We are exposed to adverse movements in foreign currency exchange rates because we translate foreign currencies into U.S. Dollars for reporting purposes. Our primary exposures have resulted from sales in Europe of books from domestic sellers where these sales are not U.S. Dollar-denominated. We face a similar risk when we sell books from foreign sellers and incur a foreign currency payable obligation for which we have been paid in U.S. Dollars. If our international revenue and operations grow, adverse currency fluctuations could reduce our revenue or increase our costs and expenses.

The security risks of e-commerce may discourage retail customers from purchasing goods from us.

For the Internet to continue to grow as a transaction medium, we and other market participants must be able to store and transmit confidential information securely over public networks. We and our business customers rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to provide secure transmission of confidential information, such as retail customer credit card numbers. We and our business customers have also individually established secure repositories in which to keep confidential information. Third parties may have the technology or know-how to breach these security measures. Any breach, or any release of confidential customer information for any other reason, could damage our reputation or customer confidence in our technology and cause our retail customers to choose not to make purchases on our websites or the websites of our business customers in the future. In addition, any security breach of our secure repositories of confidential information, or any release of confidential customer information for any other reason, could expose us to risks of loss, litigation and liability and could seriously disrupt our operations and harm our business results.

A significant number of returns could harm our results of operations by lowering our revenue and increasing our costs.

We back all purchases made through our website with a money-back guarantee. Our ability to handle a large volume of returns is unproven. In addition, any policies intended to reduce the number of product returns may result in customer dissatisfaction and less repeat business. If we have a significant volume of returns, our operating results could be harmed.

Our business may be harmed by the fraudulent, infringing or unlawful activities of third parties on our websites or our business customers' websites.

Any negative publicity generated from fraudulent or deceptive conduct by third parties could damage our reputation, harm our business and diminish the value of our brand. We have received in the past, and anticipate that we will receive in the future, communications from retail customers who were charged for books that they did not purchase because of fraudulent activity of third parties. We also periodically receive complaints from our retail customers who believe that they have been deceived as to the quality of the goods purchased on our or our business customers' websites. We expect to continue to receive requests for reimbursement from retail customers or threats of legal action against us if no reimbursement is made in these situations.

We have received in the past, and we anticipate that we will receive in the future, communications alleging that certain items listed or sold through our or our business customers' websites have infringed third-party copyrights, trademarks, trade names or other intellectual property rights. For example, authors or publishers that have restricted distribution of specific books have sued us in the past and could sue us in the future for contributing to a violation of their rights if those items are sold through our website by our booksellers. These and future claims could limit our operations and increase our

costs of doing business, whether or not the claim is adjudicated. In addition, litigation could result in interpretations of the law that require us to limit our operations or otherwise increase our costs.

In addition, we might be unable to prevent third parties from listing unlawful goods or content, and we might be subject to allegations of civil or criminal liability for the unlawful activities of third parties on our or our business customers' websites. In the future, we might have to limit our operations in costly ways to protect us from these potential liabilities, including discontinuing certain offerings. Any costs incurred as a result of liability or asserted liability relating to the sale of unlawful goods or content, the unlawful sale of goods, the fraudulent receipt of goods or the fraudulent collection of payments could harm our business. Any misrepresentation by our sellers as to the type, quantity, legal ownership, nature, or quality of their inventory could harm our reputation and cause our revenue to decline.

Existing or future government regulation could harm our business.

We are subject to general business regulations and laws, as well as regulations and laws specifically governing the Internet and e-commerce. Many of these laws are in the early stages of development; existing and future laws and regulations could impede the growth of the Internet or other online services. These regulations and laws are likely to address a variety of issues, including:

•: taxation and pricing;
•: user privacy and expression;
•: data protection;
•: consumer protection; and
•: intellectual property.

It is not clear how existing laws governing issues such as property ownership, sales and other taxes, libel, and personal privacy apply to the Internet and e-commerce. Furthermore, the growth and development of the Internet and e-commerce may prompt the passage of more stringent consumer protection laws that may impose additional burdens on those companies conducting business online. Unfavorable resolution of these issues may harm our business. Jurisdictions may also regulate the sales between our booksellers and our retail customers on our website. This could, in turn, diminish the demand for our products and services, lower our revenue and increase our cost of doing business.

Laws or regulations relating to privacy and data protection may adversely affect the growth of our business or our marketing efforts.

We are subject to increasing regulation relating to privacy, data security and the use of personally identifiable information, including that of our customers and employees. For example, several states have, or have proposed, legislation limiting the uses of personal user information gathered online or requiring online services to establish privacy policies. Federal laws and regulations currently govern the collection and use of personal identifying information in a number of areas. These include restrictions on information obtained from children under the age of 13. A new federal law also regulates the sending of commercial electronic mail messages. Some state as well as proposed federal legislation requires that companies notify customers and other affected individuals of computer security breaches involving their personal data. Moreover, proposed legislation in this country and existing laws in foreign countries require companies to establish procedures to notify users of privacy and security policies, obtain consent from users for collection and use of personal information, and/or provide users with the ability to access, correct and delete personal information collected and stored by us. These existing and potential data protection regulations could be costly to comply with or could harm our marketing efforts, including by restricting our ability to collect demographic and personal information from users

or to use or disclose such information in certain ways. If we were to violate these regulations, or if it were alleged that we had, we could face penalties and injunctions and our business could be harmed. In addition, our agreements with business customers and other third parties may limit our ability to obtain and use related consumer information.

We may be subject to tax liability for past sales and this liability may decrease our future sales.

We do not currently collect sales, value-added or other taxes on shipments into foreign countries or into states other than California, Michigan and Nevada. However, one or more other states have in the past, and may in the future, seek to impose sales tax collection obligations on us as an out-of-state company engaged in e-commerce. In addition, any new operations in states outside California, Michigan, Nevada or Washington could subject shipments into such states to state sales taxes under current or future laws. A successful assertion by one or more states or any foreign country that we should collect sales or other taxes on product sales would likely result in substantial tax liabilities, decrease our ability to compete with traditional retailers, and otherwise harm our business.

Currently, decisions of the United States Supreme Court restrict states and local governments from imposing sales and use tax collection obligations on sales made over the Internet. However, a number of states, as well as the United States Congress, have been considering various initiatives that could limit or supersede the Supreme Court's position regarding sales and use taxes on Internet sales. If any of these initiatives successfully address the Supreme Court's concerns and result in a reversal of its current position, we could be required to collect sales and use taxes in states other than California, Michigan, Nevada and Washington. The imposition by state and local governments of various taxes on Internet commerce could create administrative burdens for us and could decrease our future sales.

We may have to litigate to protect our intellectual property rights, or to defend claims that we have infringed the rights of others, which could subject us to significant liability and be time consuming and expensive.

Our success depends significantly upon our copyrights, trademarks, service marks, trade secrets, technology and other intellectual property rights. We may not be able to adequately protect our intellectual property from third parties. If this occurs, we may have to litigate to protect our intellectual property rights. These difficulties could disrupt our ongoing business, increase our expenses and distract our management's attention from the operation of our business.

Legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in Internet-related companies are uncertain and still evolving, and the future viability or value of any of our intellectual property rights is uncertain. We have not applied for the registration of all of our copyrights, trademarks and service marks, and effective trademark, service mark, copyright and trade secret protection may not be available in every country in which our content, services and products are made available online. If we were prevented from using our copyrights, trademarks or service marks, we would need to rebuild our website, as well as our brand identity with our retail and business customers and booksellers. This would increase our operating expenses substantially.

Companies frequently resort to litigation regarding intellectual property rights. If a successful claim were made against us and we could not timely and cost-effectively develop non-infringing intellectual property or license the infringed or similar intellectual property, we might be unable to continue operating our business as planned. We have received in the past, and we may in the future receive, notices of claims of infringement or misappropriation of other parties' proprietary rights. We analyze such claims on a case-by-case basis and respond as we deem appropriate. Any infringement claims could subject us to costly litigation, divert management's attention, require the change of our trademarks and the alteration of content, and require us to redesign our websites or services or require us to pay damages or enter into royalty or licensing agreements. These royalty or licensing agreements,

if required, might not be available on acceptable terms or at all. In addition, like many online and traditional businesses, we rely on information (including price and other information) gathered from the websites of others. Third parties have in the past taken, and may in the future take, action to prevent us from conducting such information gathering. If we were forced to pay for the right to gather such information, if such information becomes unavailable to us, or if we have technical issues integrating new sources of such information, our business could be harmed.

Risks Relating to This Offering

We expect to experience volatility in our stock price.

Our common stock has never been sold in a public market and an active trading market for our stock may not develop or be sustained. The price of our common stock that will prevail in the market after this offering may be higher or lower than the price you pay. Stock markets have experienced significant price and trading volume fluctuations, and the market prices of technology and e-commerce companies generally have been extremely volatile and have experienced sharp share price and trading volume changes in the first days and weeks after such companies' securities were first released for public trading. Investors may not be able to resell their shares at or above the initial public offering price. Class action litigation resulting from volatility of the trading price of our common stock would likely result in substantial costs and a diversion of management's attention and resources.

Our management has broad discretion as to the use of the net proceeds from this offering.

Our management has broad discretion as to the use of the net proceeds that we will receive from this offering. We cannot assure you that management will apply these funds effectively, nor can we assure you that the net proceeds from this offering will be invested in a manner yielding a favorable return.

Investors will experience immediate and substantial dilution in the book value of their investment.

The anticipated initial public offering price of our common stock will be substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase our common stock in this offering, you will incur an immediate dilution of approximately $8.22 in pro forma net tangible book value per share from the price you paid. The exercise of outstanding options and warrants will result in further dilution.

Securities analysts may not initiate coverage of our common stock and this may have a negative impact on our common stock's market price.

There are only two underwriters of this offering, and there is no guarantee that securities analysts will cover our common stock after the completion of this offering. If securities analysts do not cover our common stock after the completion of this offering, the lack of research coverage may adversely affect our common stock's market price. As a result, you may be unable to sell your shares of common stock at or above the initial public offering price.

We do not intend to pay dividends on our common stock, and you may lose the entire amount of your investment.

We have never declared or paid any cash dividends on our common stock and do not intend to pay dividends on our common stock for the foreseeable future. We intend to invest our future earnings, if any, to fund our growth. Therefore, you will not receive any funds without selling your shares. We cannot assure that you will receive a positive return on your investment when you sell your shares or that you will not lose the entire amount of your investment.

There may be sales of substantial amounts of our common stock after this offering, which could cause our stock price to fall.

Our current stockholders hold a substantial number of shares, which they will be able to sell in the public market in the near future. After this offering, 8,066,006 shares of common stock will be outstanding, excluding exercises of options or warrants after March 31, 2004. All of the shares sold in this offering will be freely tradable, except for shares purchased by holders subject to lock-up agreements or our investor rights agreement or by any of our existing "affiliates," as that term is defined in Rule 144 under the Securities Act, which generally includes officers, directors and significant stockholders. The remaining shares of common stock outstanding after this offering may be restricted as a result of securities laws, our investor rights agreement or lock-up agreements with WR Hambrecht + Co that restrict the holders' ability to transfer their stock for 180 days after the date of this prospectus. Of these shares, 4,844,069 will be available for sale in the public market 180 days after the date of this prospectus; and 721,937 will be available for sale in the public market at various times thereafter. WR Hambrecht + Co may, however, waive the 180-day lock-up period at any time for any stockholder. Sales of a substantial number of shares of our common stock within a short period of time after this offering could cause our stock price to fall. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional stock. See "Shares Eligible for Future Sale" beginning on page 82.

We have adopted anti-takeover defenses that could delay or prevent an acquisition of our company, even an acquisition that would be beneficial to our stockholders.

After this offering, our board of directors will have the authority to issue up to 5 million shares of preferred stock. Issuance of the preferred stock would make it more difficult for a third party to acquire a majority of our outstanding voting stock, even if doing so would be beneficial to our stockholders. Without any further vote or action on the part of the stockholders, the board of directors will have the authority to determine the price, rights, preferences, privileges and restrictions of the preferred stock. This preferred stock, if issued, might have conversion rights and other preferences that work to the disadvantage of the holders of common stock.

Our certificate of incorporation, bylaws and equity compensation plans include provisions that may deter an unsolicited offer to purchase Alibris. These provisions, coupled with the provisions of the Delaware General Corporation Law, may delay or impede a merger, tender offer or proxy contest involving Alibris. Furthermore, our board of directors is divided into three classes, only one of which will be elected each year. These factors may further delay or prevent a change of control of Alibris and may be detrimental to our stockholders. See "Description of Capital Stock—Anti-Takeover Provisions" beginning on page 80.

Continued concentration of ownership among our directors, executive officers and affiliates after this offering might lead to conflicts with other stockholders over corporate transactions or other corporate matters.

Following the completion of this offering, our directors, executive officers and holders of 5% or more of our outstanding common stock will beneficially own an aggregate of approximately 16.3% of our outstanding common stock, including warrants and stock options exercisable within 60 days after March 31, 2004. As a result, these stockholders will exercise significant control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of control could disadvantage other stockholders with interests different from those of our officers, directors and affiliates. For example, our officers, directors and affiliates could delay or prevent someone from acquiring or merging with us even if the transaction would benefit other stockholders.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions and of the successful completion of this offering and our reincorporation. Any statements that are not statements of historical fact are forward-looking statements. These statements include, but are not limited to, statements concerning:

•: the anticipated benefits and risks associated with our business strategy;
•: our future operating results and the future value of our common stock;
•: the anticipated size of or trends in the markets in which we compete and the anticipated amount and character of competition in those markets;
•: our ability to attract customers in a cost-efficient manner;
•: potential government regulation;
•: our future capital requirements and our ability to satisfy our capital needs;
•: the anticipated use of the proceeds realized from this offering;
•: the potential for additional issuances of our securities;
•: the possibility of future acquisitions of businesses or assets; and
•: possible expansion into new product categories and international markets.

When used in this prospectus, the words "anticipate," "believe," "estimate," "expect," "intend," "plan," and similar expressions identify certain of these forward-looking statements.

These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this prospectus. You should carefully consider the statements set forth in "Risk Factors" and other sections of this prospectus. Alibris does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this prospectus.

OTHER NOTES REGARDING INFORMATION CONTAINED IN THIS PROSPECTUS

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.

"Alibris" is a registered trademark of Alibris, Inc. Other service marks, trademarks and trade names referred to in this prospectus are property of their respective owners. OpenIPO is a registered service mark of WR Hambrecht + Co, LLC.

USE OF PROCEEDS

The net proceeds to us from the sale of the shares of common stock offered in this offering are estimated to be $26.6 million, after deducting the estimated underwriting discount and estimated offering expenses payable by us. If the underwriters' over-allotment option is exercised in full, we estimate that net proceeds will be $30.8 million. We presently intend to use approximately 15% of the net proceeds from this offering to grow our product supply, approximately 15% to expand marketing and sales and approximately 20% to invest in technology and operations infrastructure. In addition, we may use a portion of the net proceeds of this offering to acquire complementary technologies or businesses, although we are not currently a party to any contracts or letters of intent with respect to any acquisitions. The balance of the net proceeds of this offering will be used for working capital and general corporate purposes. Pending such uses, we will invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities. We cannot predict whether the proceeds will yield a favorable return.

DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock and do not anticipate declaring or paying cash dividends in the foreseeable future. Our credit facility with Silicon Valley Bank prohibits the payment of cash dividends without prior approval of the lender. Payments of future dividends, if any, will be at the discretion of our Board of Directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs and plans for expansion.

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2004:

•: on an actual basis;
•: on a pro forma basis after giving effect to the conversion of all outstanding shares of preferred stock into common stock upon the closing of this offer; and
•: on a pro forma as adjusted basis to reflect the receipt of the estimated net proceeds from the sale of 2,500,000 shares of common stock in this offering at an assumed initial public offering price of $12.00 per share, after deducting the estimated underwriting discount and estimated offering expenses.

			As of March 31, 2004
			Actual			Pro Forma			Pro Forma As Adjusted
			(in thousands, except share data)
Cash and cash equivalents.			$	3,807		$	3,807		$	30,357

Total indebtedness				191			191			191
Convertible redeemable preferred stock; $0.00001 par value. Authorized 5,000,000 shares (actual, pro forma and pro forma as adjusted); issued and outstanding 3,247,503 shares (liquidation value of $66,299) (actual), none (pro forma and pro forma as adjusted)				88,023			—			—
Stockholders' equity (deficit):
	Common stock; $.00001 par value. Authorized 100,000,000 shares (actual, pro forma and pro forma as adjusted); issued and outstanding 1,553,719 shares (actual), 5,566,006 shares (pro forma) and 8,066,006 (pro forma as adjusted)			—			—			—
Additional paid-in capital				—			88,023			114,573
Deferred stock compensation				(1,535	)		(1,535	)		(1,535	)
Notes receivable from stockholders				(578	)		(578	)		(578	)
Accumulated deficit				(78,956	)		(78,956	)		(78,956	)

		Total stockholders' equity (deficit)		(81,069	)		6,954			33,504

	Total capitalization		$	7,145		$	7,145		$	33,695

The information in the table above excludes:

•: 214,198 shares of common stock subject to outstanding options as of March 31, 2004 at a weighted average exercise price of $1.6359 per share, under our 1998 stock option plan and 2000 equity incentive plan;
•: 185,849 shares of common stock issuable upon exercise of outstanding warrants as of March 31, 2004 at a weighted average exercise price of $28.41 per share;
•: 1,875,927 shares of common stock reserved for future grant or issuance under our 1998 stock option plan, 2000 equity incentive plan, 2004 equity incentive plan and 2004 employee stock purchase plan;
•: any shares of common stock automatically reserved for issuance under our 2004 employee stock purchase plan, as more fully described in "Management—Employee Benefit Plans and Option Grants;" and
•: up to 375,000 shares issuable upon exercise of the underwriters' over-allotment option at an assumed initial public offering price of $12.00 per share.

You should read this capitalization table together with the sections of this prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," and with the financial statements and related notes beginning on page F-1.

DILUTION

Our pro forma net tangible book value as of March 31, 2004 was $4.0 million, or $0.71 per share of common stock. Pro forma net tangible book value per share represents total tangible assets less total liabilities, divided by the total number of shares of common stock outstanding as of March 31, 2004 after giving effect to the conversion of all outstanding shares of preferred stock into 4,012,287 shares of our common stock upon the closing of this offering.

After giving effect to the issuance and sale of 2,500,000 shares of common stock offered by us at an assumed initial public offering price of $12.00 per share and after deducting the estimated underwriting discount and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2004 would have been $30.6 million, or $3.78 per share of common stock. This represents an immediate increase in pro forma net tangible book value of $3.07 per share to existing stockholders and an immediate dilution of $8.22 per share to new investors. The following table illustrates this dilution on a per share basis:

Assumed initial public offering price per share				$	12.00
	Pro forma net tangible book value per share as of March 31, 2004	$	0.71
	Increase per share attributable to new investors		3.07

Pro forma as adjusted net tangible book value per share after this offering					3.78

Dilution per share to new investors in this offering				$	8.22

If the underwriters exercise their over-allotment option in full, there will be an increase in pro forma as adjusted net tangible book value of $3.40 per share to existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of $7.89 to new investors.

The following table summarizes on a pro forma as adjusted basis, as of March 31, 2004, after giving effect to the conversion of all outstanding shares of preferred stock into 4,012,287 shares of our common stock upon the closing of this offering, and the offering at an assumed initial public offering price of $12.00 per share and before deducting the estimated underwriting discount and estimated offering expenses payable by us, the difference between the existing stockholders and the purchasers of shares of common stock in this offering with respect to the number of shares of common stock purchased from us, the total consideration paid and the average price paid per share:

	Shares Purchased			Total Consideration
	Shares Purchased			Total Consideration				Average Price Per Share
	Number	Percent		Amount		Percent		Average Price Per Share
Existing stockholders	5,566,006	69.0	%	$	71,302,635	70.4	%	$	12.81
New investors	2,500,000	31.0			30,000,000	29.6			12.00

Total	8,066,006	100.0	%	$	101,302,635	100.0	%

In the preceding tables, the shares of common stock outstanding exclude:

•: 214,198 shares of common stock subject to outstanding options as of March 31, 2004 at a weighted average exercise price of $1.6359 per share, under our 1998 stock option plan and 2000 equity incentive plan;
•: 185,849 shares of common stock issuable upon exercise of outstanding warrants as of March 31, 2004 at a weighted average exercise price of $28.41 per share;
•: 1,875,927 shares of common stock reserved for future grant or issuance under our 1998 stock option plan, 2000 equity incentive plan, 2004 equity incentive plan and 2004 employee stock purchase plan;

•: any shares of common stock automatically reserved for issuance under our 2004 employee stock purchase plan, as more fully described in "Management—Employee Benefit Plans and Option Grants;" and
•: up to 375,000 shares issuable upon exercise of the underwriters' over-allotment option at an assumed initial public offering price of $12.00 per share.

If the underwriters exercise their over-allotment option in full, our existing stockholders would own 65.9% and our new investors would own 34.1% of the total number of shares of our common stock outstanding after this offering.

The assumed public offering price represents the middle of the proposed offering range on May 3, 2004.

Assuming the exercise in full of all options and warrants outstanding as of March 31, 2004, the average price per share paid by our existing stockholders would increase from $12.81 per share to $12.90 per share.

SELECTED FINANCIAL DATA

The table below shows selected financial data for our last five fiscal years and the three months ended March 31, 2003 and 2004. The statements of operations data for each of the three fiscal years in the period ended December 31, 2003 and the balance sheet data at December 31, 2002 and December 31, 2003 are derived from our audited financial statements included elsewhere in this prospectus. The statements of operation data for the fiscal years ended December 31, 1999 and 2000 and the balance sheet data at December 31, 1999, 2000 and 2001 are derived from our audited financial statements not included in this prospectus.

The statements of operations data for the three month periods ended March 31, 2003 and March 31, 2004 and the balance sheet data at March 31, 2004 are derived from our unaudited financial statements included elsewhere in this prospectus. Such unaudited interim financial statements have been prepared on the same basis as the audited financial statements and reflect all adjustments necessary for a fair presentation of the financial information, in accordance with generally accepted accounting principles.

The following selected financial data should be read in conjunction with our "Management's Discussion and Analysis of Financial Condition and Results of Operations" and financial statements and related notes included elsewhere in this prospectus.

				Year Ended December 31,															Three Months Ended March 31,
				1999			2000			2001			2002			2003			2003			2004
				(in thousands, except per share data)
Statements of Operations Data:
Revenue:
	Product revenue			$	4,906		$	14,974		$	21,752		$	31,222		$	45,456		$	10,350		$	13,830
	Stock-based sales discounts				—			(820	)		(783	)		(178	)		—			—			—

		Total revenue			4,906			14,154			20,969			31,044			45,456			10,350			13,830
Cost of product revenue					4,027			11,257			15,103			23,338			36,782			8,563			11,144

Gross profit					879			2,897			5,866			7,706			8,674			1,787			2,686

Operating expenses:
	Marketing and sales(1)				4,713			15,125			3,835			3,925			3,668			908			1,047
	Operations(1)				4,411			10,784			10,231			8,765			6,692			1,739			1,661
	General and administrative(1)				2,659			4,357			4,063			2,059			1,924			509			534
	Stock-based compensation				1,291			1,960			582			66			1,080			66			344
	Amortization of goodwill and other intangible assets				197			1,142			1,096			39			39			9			10
	Impairment of goodwill				—			628			165			—			—			—			—

		Total operating expenses			13,271			33,996			19,972			14,854			13,403			3,231			3,596

Operating loss					(12,392	)		(31,099	)		(14,106	)		(7,148	)		(4,729	)		(1,444	)		(910	)
Interest income					382			1,119			324			107			50			15			11
Interest expense					(69	)		(60	)		(53	)		(31	)		(58	)		(8	)		(15	)
Other income (expenses), net					(212	)		11			108			(143	)		(101	)		(31	)		13

			Loss before provision of income taxes		(12,291	)		(30,029	)		(13,727	)		(7,215	)		(4,838	)		(1,468	)		(901	)
Provision for income taxes					5			—			—			19			—			—			—

Net loss					(12,296	)		(30,029	)		(13,727	)		(7,234	)		(4,838	)		(1,468	)		(901	)
Accretions on redeemable preferred stock					(1,209	)		(4,518	)		(5,670	)		(5,944	)		(5,968	)		(1,492	)		(1,528	)
Deemed dividend on Series F preferred stock					—			—			—			—			—			—			(2,539	)

Net loss applicable to common stockholders				$	(13,505	)	$	(34,547	)	$	(19,397	)	$	(13,178	)	$	(10,806	)	$	(2,960	)	$	(4,968	)

Net loss per share—basic and diluted(2)				$	(22.54	)	$	(32.02	)	$	(18.53	)	$	(11.61	)	$	(9.21	)	$	(2.55	)	$	(3.59	)

Weighted average shares outstanding—basic and diluted(2)					599			1,079			1,047			1,135			1,173			1,163			1,383

Pro forma net loss per share(3)																$	(1.06	)				$	(0.68	)

Shares used in computing pro forma net loss per share(3)																	4,573						5,089

	As of December 31,															As of March 31,
	1999			2000			2001			2002			2003			2004			2004
																Actual			Pro Forma(4)
	(in thousands)

Balance Sheet Data:
Cash and cash equivalents	$	11,741		$	10,839		$	6,486		$	1,915		$	472		$	3,807		$	3,807
Working capital		11,013			13,126			7,695			2,028			(1,038	)		3,263			3,263
Total assets		20,127			23,766			16,158			9,924			7,298			11,155			11,155
Total indebtedness		165			833			352			964			705			191			191
Convertible redeemable preferred stock		25,006			58,988			69,901			75,845			81,813			88,023			—
Total stockholders' equity (deficit)	$	(7,454	)	$	(38,634	)	$	(56,617	)	$	(69,465	)	$	(79,202	)	$	(81,069	)	$	6,954

(1): Amounts exclude stock-based compensation as follows:

	Year Ended December 31,											Three Months Ended March 31,
	1999		2000		2001		2002			2003		2003			2004
	(in thousands)
Marketing and sales	$	40	$	128	$	50	$	(102	)	$	219		(8	)	$	68
Operations		152		605		126		33			240		36			47
General and administrative		1,099		1,227		406		135			621		38			229

	$	1,291	$	1,960	$	582	$	66		$	1,080	$	66		$	344

(2): See Note 2 of Notes to Financial Statements for discussion regarding computation and presentation.
(3): The pro forma net loss per share is computed using the weighted average number of shares of common stock outstanding, including the pro forma effects of the automatic conversion of our Series A, B, C, D, E and F preferred stock into shares of our common stock effective upon the closing of this offering as if such conversion occurred at the beginning of the period, or at the date of issuance, if later, and a decrease in net loss attributed to common stockholders for the accretions on redeemable preferred stock. The net loss applicable to common stockholders and the shares used in calculating the pro forma net loss per share is as follows:

				Year Ended December 31, 2003			Three Months Ended March 31, 2004
				(in thousands, except per share data)
Net loss applicable to common stockholders				$	(10,806	)	$	(4,968	)
Accretions on redeemable preferred stock					5,968			1,528

	Pro forma net loss applicable to common stockholders			$	(4,838	)	$	(3,440	)

Weighted average common shares outstanding					1,173			1,383

Plus weighted average preferred shares outstanding:
	Series A (conversion rate of 1 to 4)				694			694
	Series B (conversion rate of 1 to 1.13)				786			786
	Series C (conversion rate of 1 to 1.14)				264			264
	Series D (conversion rate of 1 to 1.16)				880			880
	Series E (conversion rate of 1 to 1)				776			776
	Series F (conversion rate of 1 to 1)				—			306

		Total weighted average preferred shares outstanding (as converted)			3,400			3,706

		Total weighted average shares outstanding used in computing pro forma net loss per share			4,573			5,089

			Pro forma net loss per share	$	(1.06	)	$	(0.68	)

(4): Gives effect to the conversion of all outstanding shares of preferred stock into shares of common stock effective upon the closing of this offering.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the related notes thereto. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions, as set forth under "Special Note Regarding Forward-Looking Statements." Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth in the following discussion and under "Risk Factors," "Business" and elsewhere in this prospectus.

Overview

Alibris operates an online marketplace for used and hard-to-find books. We use the Internet and our specialized technology and logistics capabilities to aggregate this highly fragmented market, bringing buyers and sellers together. Our broad selection of over 40 million books, some of which are different copies, editions or collectible copies of the same title, is supplied primarily by our international network of over 5,000 sellers that meet our participation criteria, which we refer to as independent professional booksellers. We provide these independent booksellers with specialized inventory management, logistics and distribution services. Additionally, we use our knowledge of the used and hard-to-find book market to selectively purchase or consign low-cost book inventory.

We incorporated in California in May 1998 and shortly thereafter acquired the business of Interloc, Inc., an online listing and e-mail service for booksellers. In June 1998, we opened our distribution center in Sparks, Nevada. In November 1998, we began providing an online marketplace for used and hard-to-find books and began to rapidly expand our operations to facilitate expected business growth. We exited the lines of business we acquired from Interloc, Inc. by the end of 1999. In August 2000, we began to streamline our operations, reflecting changing conditions in the capital markets and business climate at that time. Primarily through headcount reductions and the elimination of associated expenses, we reduced our operating expenses from a peak of $34.0 million in 2000 to $14.9 million in 2002 and $13.4 million in 2003. In 2004, we plan to expand our operations modestly. In February 2004, we raised gross proceeds of $4.8 million from the sale of our Series F preferred stock to finance this expansion.

Our revenue has increased each year since we incorporated. We believe that our revenue growth has been driven in large part by:

•: growth in the market for online book sales;
•: our ability to drive traffic to our consumer website;
•: the launch and growth of new business customer relationships;
•: price reductions enabled by our decision to require our booksellers located in the United States and Canada to ship directly to end customers located in those countries, and the decisions of our business customers to do the same; and
•: our ability to use our knowledge of pricing and demand in the market for used and hard-to-find books to price books at or near current market levels.

Our revenue is composed of two segments, our retail segment and our business segment. Retail revenue is generated from book sales to consumers and library customers directly from our consumer website, www.alibris.com, and our library website, www.alibris.com/library. Business revenue is generated from book sales through our online business customers, such as Amazon.com and Barnes&Noble.com, and from the on-site kiosks and special order desks of traditional retailers, such as Borders. In 2003, retail revenue and business revenue constituted 59.5% and 40.5%, respectively, of our total revenue.

Business revenue as a percentage of total revenue is affected in part by the success of our business customers' marketing and merchandising efforts for used and hard-to-find books, which are largely beyond our control, and the extent to which we add new business customers. As a result, the prediction of our future revenue mix is difficult. Although our retail revenue as a percentage of total revenue declined from 2001 to 2002 and from 2002 to 2003, we cannot predict whether or not this trend will continue.

During 2003, Barnes&Noble.com accounted for 17.5% of our total revenue and Amazon.com and its related entities accounted for 14.1% of our total revenue. No other single customer accounted for more than 10% of our total revenue. To date, our revenue has been derived primarily from sales in the United States and Canada; revenue from sales outside of the United States and Canada represented 11.2% of our total revenue in 2003.

Our supply of books comes from three sources:

•: books supplied by independent professional booksellers;
•: books that we purchase or which are consigned to us and are held in our distribution center; and
•: new books that we purchase from book wholesalers, primarily the Ingram Book Group.

Books supplied by our independent booksellers are sold both on our websites and to our business customers, and either ship directly to customers or ship through our distribution center. The majority of our revenue is derived from sales of books shipped directly to end customers from our network of booksellers. Purchased used books, consigned books and new books procured from wholesalers are also sold on our websites and, in most cases, through our business customers.

Cost of revenue consists primarily of the costs to acquire books, shipping expenses and packaging materials. Our cost of revenue can be higher on sales that we process through our distribution center than on sales of books that are shipped directly by our booksellers to end customers due to the added cost of inbound shipping and packaging materials. Cost of revenue also depends on the magnitude of reserves taken for obsolete and slow-moving inventory from period to period.

In general, we generate higher gross margins on sales in our retail segment than sales in our business segment, because we generally sell books at a discount to our business customers. Our gross margins are generally lower on sales of books supplied by our network of booksellers than on sales of our own inventory because, in general, we purchase these books from bookseller at a higher price than we would normally pay to acquire them for our own inventory. We also use our market intelligence and pricing technology to price books at current market levels which, although beneficial to our revenue growth, typically results in lower average unit sales prices and lower gross margins.

Our gross margins have declined over time due to our decisions to require booksellers located in the United States and Canada to ship directly to end customers located in those countries, to increase sales through our business customers, and to use our market intelligence to price books at current market levels. We believe that the demand stimulated by these decisions, and the resulting increases in revenue and gross profit, have significantly improved our business and future prospects. Although our gross margin generally declined from 2002 to 2003, within the last four quarters our gross margin has been relatively stable. Although we expect our gross margin to remain stable for the foreseeable future, we cannot assure you that this will be the case.

Operating expenses consist of marketing and sales, operations, general and administrative, stock-based compensation, amortization of goodwill and other intangible assets, and impairment of goodwill. Marketing and sales expense consists of the wages, benefits and other expenses for employees engaged in our consumer and business customer marketing and sales programs, retail marketing expenses (fees paid to third parties to drive traffic to our websites) and credit card fees. Operations expense consists

of fulfillment expenses and the wages, benefits and other expenses for employees engaged in technology, customer service, supplier services and distribution. Fulfillment expenses generally increase with any increase in the sales volume through our distribution center, and include the costs of our third-party logistics personnel and the lease expenses at our distribution center. General and administrative expense consists of wages and benefits for executive, accounting and administrative personnel, bad debt expenses, legal and other general corporate expenses. Stock-based compensation represents the aggregate differences, at the dates of grant, between the respective exercise prices of options to purchase common stock and the estimated fair market values of the underlying stock. Stock-based compensation is amortized on an accelerated amortization method over the vesting period of the related options, which is generally four years. Amortization of goodwill and intangible assets represents the non-cash charges for the expensing, over the anticipated useful life, of intangible assets and goodwill.

We have experienced substantial net losses since our inception due to the significant costs incurred to develop our business. As of March 31, 2004, we had an accumulated deficit of $79.0 million. We expect to continue to incur operating losses for the foreseeable future as we incur expenses to build our infrastructure and increase spending on marketing and sales activities in an effort to grow our revenue.

Critical Accounting Policies

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenue and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are set forth below.

Revenue recognition.

To date, we have derived our revenue from sales of books to consumers, libraries and businesses. In general, we determine that collectibility on our accounts is probable and recognize as revenue the full amount charged to the end customer, which consists of the selling price of the book plus any applicable shipping charge, on the date an item is shipped from our distribution center to an end customer, or when we are notified that an item has been shipped directly to an end customer. For our retail customers, including some of our library customers, we require payment by credit card. Business customers and most library customers pay us on standard commercial terms.

We record revenue on a gross basis in the amount billed to customers for the sale of inventory originating from independent professional booksellers because, for inventory shipped directly from a bookseller to the customer, we are the primary obligor in the transactions, we have latitude in establishing prices, we bear the return risk on the inventory sold, and we bear credit risk for the amount billed to the customer. For inventory shipped from a bookseller through our distribution center, as opposed to directly to the customer, the foregoing four characteristics still apply, and we also bear the risk of physical loss of the inventory from the time the inventory leaves the possession of the bookseller until the time we ship it to the customer.

Revenue is recorded net of estimated returns, coupons redeemed by customers, and other discounts. Our management makes estimates of potential future product returns related to current period revenue. We analyze historical returns, current economic trends and changes in customer demand and acceptance of our products when evaluating the adequacy of our estimated returns and

other allowances, such as reserves for doubtful accounts, in any accounting period. As of December 31, 2003, our reserve for returns was $0.2 million and our reserve for doubtful accounts was $0.3 million.

Allowance for obsolete inventory. We determine our reserves for obsolete and slow-moving inventory through a three-pronged analysis, and establish a reserve based on the analysis that results in the highest discount to the value of our inventory. To complete this analysis, we:

•: measure the difference between the cost of inventory and its estimated market value based upon assumptions about future demand and current market conditions;
•: estimate a charge for each title based on the number of excess books of that title in our inventory multiplied by the cost of that title; and
•: perform an aging analysis of our inventory, which discounts the value of our inventory based on the length of time it has remained available for sale.

Each prong of this analysis is automated, performed quarterly and run using our proprietary pricing and demand technology. Accordingly, management relies on the accuracy of the information that serves as the foundation for this technology when determining its allowance for obsolete inventory.

Valuation of long-lived and intangibles assets and goodwill.

We acquired Bibliocity, Inc., an online listing service for booksellers, in August 1999. We accounted for this business combination using the purchase method of accounting and recorded the market value of our common stock issued in connection with this acquisition and the related amount of direct transaction costs as the cost of acquiring this entity. These costs were allocated among the individual assets acquired and liabilities assumed, including goodwill and various identifiable intangible assets, based on their respective fair values. We allocated $5.0 million to goodwill, which equaled the amount by which we determined the purchase price exceeded the fair value of the net assets at the time of the acquisition. Amortization of goodwill and intangibles assets associated with business acquisitions were $1.1 million, $39,000 and $39,000 during the years ended December 31, 2001, 2002 and 2003, respectively. In September 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets", which became effective for us on January 1, 2002. Under SFAS No. 142, we ceased amortizing $2.9 million of goodwill as of January 1, 2002. Instead of amortizing of goodwill, we performed a transitional impairment test of our goodwill on January 1, 2002, and annual impairment testing thereafter. Upon completing our initial review, we determined that the carrying value of our recorded goodwill as of January 1, 2002, had not been impaired. Accordingly, no transitional impairment charge was recorded as a result of the adoption of SFAS No. 142.

During the three months ended September 30, 2003, we completed our annual impairment testing. Using the steps mentioned above to determine the estimated fair value of goodwill, we determined that goodwill had not been impaired as of the valuation date. In performing our testing, we were required to make estimates regarding future operating trends and other variables used in the analysis. The value of our goodwill balance was verified by an independent valuation analyst.

Results of Operations

The following table sets forth our results of operations expressed as a percentage of total revenue for the year ended 2001, 2002 and 2003 and the three months ended March 31, 2003 and 2004.

				Year Ended December 31,						Three Months Ended March 31
				2001		2002		2003		2003		2004
				(as a percentage of total revenue)
Statements of Operations Data:
Revenue:
	Product revenue			103.7	%	100.6	%	100.0	%	100.0	%	100.0	%
	Stock-based sales discounts			(3.7	)	(0.6	)	—		—		—

		Total revenue		100.0		100.0		100.0		100.0		100.0
Cost of product revenue				72.0		75.2		80.9		82.7		80.6

Gross profit				28.0		24.8		19.1		17.3		19.4

Operating expenses:
	Marketing and sales(1)			18.3		12.6		8.1		8.8		7.5
	Operations(1)			48.8		28.2		14.7		16.8		12.0
	General and administrative(1)			19.4		6.6		4.2		4.9		3.9
	Stock-based compensation			2.8		0.2		2.4		0.6		2.5
	Amortization of goodwill and other intangible assets			5.2		0.1		0.1		0.1		0.1
	Impairment of goodwill			0.8		—		—		—		—

		Total operating expenses		95.3		47.7		29.5		31.2		26.0

Operating loss				(67.3	)	(22.9	)	(10.4	)	(13.9	)	(6.6	)
Interest income				1.5		0.3		0.1		0.1		0.1
Interest expense				(0.3	)	(0.1	)	(0.1	)	(0.1	)	(0.1	)
Other expense, net				0.5		(0.5	)	(0.2	)	(0.3	)	0.1

Loss before income taxes				(65.6	)	(23.2	)	(10.6	)	(14.2	)	(6.5	)
Provision for income taxes				—		0.1		—		—		—

Net loss				(65.6	)	(23.3	)	(10.6	)	(14.2	)	(6.5	)
Accretions on redeemable preferred stock				(27.0	)	(19.1	)	(13.1	)	(14.4	)	(11.0	)
Deemed dividend on Series F preferred stock				—		—		—		—		(18.4	)

Net loss applicable to common stockholders				(92.6	)%	(42.4	)%	(23.7	)%	(28.6	)%	(35.9	)%


(1) Amounts exclude equity-based compensation as follows:
			Marketing and sales	0.3	%	(0.3	)%	0.5	%	(0.1	)%	0.5	%
			Operations	0.6		0.1		0.5		0.3		0.3
			General and administrative	1.9		0.4		1.4		0.4		1.7

				2.8	%	0.2	%	2.4	%	0.6	%	2.5	%

Our results of operations reflect the operations of a company with very limited liquidity and capital resources. Accordingly, you may find it difficult to evaluate our prospects following completion of this offering. Please read the section of the prospectus entitled "Risk Factors" beginning on page 8. The following discussion concerning results of operations should be read in conjunction with "Selected Financial Data," the financial statements and accompanying notes and the other financial data included elsewhere in this prospectus. Our fiscal year ends on December 31.

Comparison of the Three Months Ended March 31, 2003 and 2004

Revenue

			Three Months Ended March 31, 2003			Three Months Ended March 31, 2004			% Change 2003 to 2004
			(in millions, except percentages)
Retail revenue			$	6.3		$	7.8		24.1	%
	Percentage of total revenue			60.7	%		56.4	%
Business revenue			$	4.1		$	6.0		48.3
	Percentage of total revenue			39.3	%		43.6	%

		Total revenue	$	10.4		$	13.8		33.6	%

The growth of $1.5 million in retail revenue was attributable to a 27.7% increase in the number of units sold, which was offset in part by a 2.8% decrease in retail average unit sales price. The growth in units sold resulted in a $1.7 million increase in retail revenue, offset in part by a $0.2 million decrease due to price declines. We believe the increase in retail revenue was primarily due to an increased focus on marketing initiatives and website improvements that enhanced customer acquisition and retention.

The growth of $1.9 million in business revenue was attributable to a 67.6% increase in the number of units sold, which was offset in part by an 11.5% decrease in business average unit sales price. Growth in units sold resulted in a $2.7 million increase in business revenue, offset in part by a $0.8 million decrease due to price declines. The majority of the revenue increase, as well as the decrease in average unit sales price, resulted primarily from Barnes&Noble.com shifting in 2003 from a model under which our booksellers fulfilled orders through our distribution center to a model under which our booksellers located in the United States and Canada ship directly to end customers located in those countries. This shift resulted in reduced shipping and handling costs, allowing us to reduce prices, which we believe resulted in increased sales volume. While Barnes&Noble.com began this shift in the second quarter of 2003, the full impact of the change was not realized until the third quarter 2003.

Sales outside of the United States and Canada represented 11.1% and 10.6% of our total revenue in the quarters ended March 31, 2003 and March 31, 2004, respectively.

Gross Profit

		Three Months Ended March 31, 2003			Three Months Ended March 31, 2004			% Change 2003 to 2004
		(in millions, except percentages)
Retail gross profit		$	0.9		$	1.8		86.0	%
	Retail gross margin		15.1	%		22.6	%
Business gross profit		$	0.8		$	0.9		10.1
	Business gross margin		20.7	%		15.4	%

Total gross profit		$	1.8		$	2.7		50.3	%

	Total gross margin		17.3	%		19.4	%

Total gross margin increased from the quarter ended March 31, 2003 to the quarter ended March 31, 2004 primarily as a result of additions to the inventory reserve in the first quarter of 2003, affecting both retail and business gross margins, that were not repeated in the first quarter of 2004. This increase was offset in part by reduced gross margins in the business segment, resulting from Barnes&Noble.com's shifting to our new shipping model.

The increase in retail gross margin was due primarily to an 11.4% decrease in the retail average cost per unit. The decrease in 2004 was primarily due to increasing our inventory reserve in the first quarter of 2003. The decline in retail average cost per unit was offset in part by a 2.8% decrease in the retail average unit sales price.

The decline in business gross margin resulted primarily from a combination of two factors. The shift by our major business customers in 2003 to our new shipping model had a negative impact on gross margins because it resulted in a decrease in the business average unit sales price and a concurrent increase in the business average cost per unit as a percentage of revenue. The decrease in gross margin due to the shipping model change was offset, in part, by the fact that in the first quarter of 2004 we did not increase our inventory reserve as we had done in the first quarter of 2003. This had a positive impact on our gross margin. Overall, the business average unit sales price decreased by 11.5% and the business average cost per unit increased by 5.6%.

Operating Expenses

			Three Months Ended March 31, 2003			Three Months Ended March 31, 2004			% Change 2003 to 2004
			(in millions, except percentages)
Marketing and sales			$	0.9		$	1.0		15.3	%
	Percentage of total revenue			8.8	%		7.5	%
Operations			$	1.7		$	1.7		(4.5	)
	Percentage of total revenue			16.8	%		12.0	%
General and administrative			$	0.5		$	0.5		4.9
	Percentage of total revenue			4.9	%		3.9	%
Stock-based compensation			$	0.1		$	0.3		*
	Percentage of total revenue			0.6	%		2.5	%
Amortization of goodwill and other intangible assets and impairment of goodwill			$	—		$	—		*
	Percentage of total revenue			*	%		*	%

		Total operating expenses	$	3.2		$	3.6		11.3	%

	Percentage of total revenue			31.2	%		26.0	%

*: Percentage not meaningful.

Marketing and sales expense increased $0.1 million from the quarter ended March 31, 2003 to the quarter ended March 31, 2004 due to increased spending on marketing programs of $0.2 million. This increase was offset, in part, by decreased depreciation, travel and temporary employee expenses. We expect to selectively increase our marketing and sales expenses in the future to increase personnel, and to expand our online marketing programs. We cannot assure you that we will be able to generate revenue to offset such increased expenses.

Operations expense decreased $0.1 million from the quarter ended March 31, 2003 to the quarter March 31, 2004 due to lower depreciation expense. We expect to selectively increase our operations expenses in the future to increase personnel and purchase software and equipment to handle the growth of our sales volume. We cannot assure you that we will be able to generate revenue to offset such increased expenses.

General and administrative expense was unchanged from the quarter ended March 31, 2003 to the quarter ended March 31, 2004. We expect to increase our general and administrative expenses in the future, particularly in 2004 as we incur costs associated with being a public company. We cannot assure you that we will be able to generate revenue to offset such increased expenses.

The increase in stock-based compensation expense was primarily due to an increase in the number of employee stock options granted in the second half of 2003 and amortized in 2004 combined with a higher average estimated price per share of our common stock at the time these options were granted.

Comparison of the Years Ended December 31, 2002 and 2003

Revenue

			Year Ended December 31, 2002			Year Ended December 31, 2003			% Change 2002 to 2003
			(in millions, except percentages)
Retail revenue			$	20.4		$	27.1		32.7	%
	Percentage of total revenue			65.7	%		59.5	%
Business revenue			$	10.8		$	18.4		70.0
	Percentage of total revenue			34.9	%		40.5	%
Stock-based sales discounts			$	(0.2	)	$	—		*
	Percentage of total revenue			(0.6	)%		*	%

		Total revenue	$	31.0		$	45.5		46.4	%

*: Percentage not meaningful.

The growth of $6.7 million in retail revenue was attributable to a 39.4% increase in the number of units sold, which was offset by a 4.8% decrease in retail average unit sales price. The growth in units sold resulted in an $8.0 million increase in retail revenue, offset in part by a $1.3 million decrease due to price declines. We believe the increase in retail revenue was primarily due to an increased focus on marketing initiatives and website improvements that enhanced customer acquisition and retention. In 2003, $1.2 million of retail revenue was attributable to a project with one of our library customers. We do not expect to generate a similar amount of revenue from a single library project in 2004.

The growth of $7.6 million in business revenue was attributable to a 74.1% increase in the number of units sold. Approximately 75% of this increase came from our largest business customers who shifted in 2003 from a model under which our booksellers fulfilled orders through our distribution center to a model under which our booksellers located in the United States and Canada ship directly to end customers located in those countries. This shift resulted in reduced shipping and handling costs, allowing us to reduce prices, which we believe resulted in increased sales volume. Although this shift began in the fourth quarter of 2002, we did not recognize the full impact of this shift until the third quarter of 2003, when Barnes&Noble.com completed its adoption of our new shipping model. Also, an additional $1.6 million of our business revenue increase was attributable to the full-year impact in 2003 of new business customer acquisitions in 2002 and $0.8 million of the increase resulted from our acquisition of new business customers in 2003. These increases were offset by a $0.5 million decline in revenues from other business accounts and a 2.4% decrease in our business average sales price.

Sales outside of the United States and Canada represented 9.0% of our total revenue in 2002 and 11.2% of our total revenue in 2003.

Stock-based sales discounts represent the amortization of fair value at the date of issuance of any warrants we have issued to business customers in connection with initiating our commercial relationship. These discounts were fully amortized by the first quarter of 2002, and resulted in a charge of $0.2 million in 2002.

Gross Profit

		Year Ended December 31, 2002			Year Ended December 31, 2003			% Change 2002 to 2003
		(in millions, except percentages)
Retail gross profit		$	4.8		$	5.4		11.7	%
	Retail gross margin		23.6	%		19.9	%
Business gross profit		$	2.9		$	3.3		14.0
	Business gross margin		27.1	%		17.9	%

Total gross profit		$	7.7		$	8.7		12.6	%

	Total gross margin		24.8	%		19.1	%

The decline in total gross margin between 2002 and 2003 was primarily due to a shift in our sales mix from retail customers to business customers. In addition, following the introduction of our pricing and demand technology in the first quarter of 2003, we reduced prices on certain books held in inventory by, or consigned to, our distribution center, resulting in lower gross margin on the sale of those books to retail and business customers.

The decline in retail gross margin was due primarily to a 4.8% decrease in the retail average unit sales price while the retail average cost per unit remained constant.

The decline in business gross margin was due to a 2.4% decrease in the business average unit sales price (excluding stock-based sales discounts), and an 11.8% increase in the business average cost per unit during the same period. The decrease in business average unit sales price and increase in the business average cost per unit was due primarily to the shift by some of our business customers to a model under which our booksellers located in the United States and Canada ship directly to end customers in those countries. While the direct shipping model change allowed us to reduce shipping and handling costs, we also reduced prices on books supplied by sellers in connection with the change, causing our business cost per unit to increase.

Operating Expenses

			Year Ended December 31, 2002			Year Ended December 31, 2003			% Change 2002 to 2003
			(in millions, except percentages)
Marketing and sales			$	3.9		$	3.7		(6.5	)%
	Percentage of total revenue			12.6	%		8.1	%
Operations			$	8.8		$	6.7		(23.7	)
	Percentage of total revenue			28.2	%		14.7	%
General and administrative			$	2.1		$	1.9		(6.6	)
	Percentage of total revenue			6.6	%		4.2	%
Stock-based compensation			$	0.1		$	1.1		*
	Percentage of total revenue			0.2	%		2.4	%
Amortization of goodwill and other intangible assets and impairment of goodwill			$	—		$	—		*
	Percentage of total revenue			*	%		*	%

		Total operating expenses	$	14.9		$	13.4		(9.8	)%

	Percentage of total revenue			47.7	%		29.5	%

*: Percentage not meaningful.

Marketing and sales expense decreased $0.4 million in 2003 due to lower salary, benefits and rent resulting from headcount reductions that commenced in 2002, and $0.2 million due to lower depreciation. These decreases were offset in part by increased spending on marketing programs.

Operations expense decreased $1.6 million due to lower salary, benefits and rent resulting from the impact of headcount reductions that commenced in 2002, and $0.5 million due to lower depreciation.

The decrease in general and administrative expense was primarily due to a reduction in depreciation expense of $0.2 million in 2003, offset in part by an increase in bad debt expense.

The increase in stock-based compensation expense was due to the deferred compensation charge taken in association with the repricing of stock options in 2001 and the increased number of employee stock options granted and amortized in 2003 compared with 2002, offset in part by cancellation of stock options in connection with employment terminations.

Provision for Income Taxes

We have recorded no significant provision or benefit for federal income taxes as we have incurred net operating losses since inception. As of December 31, 2003 we had $57.5 million of net operating loss carryforwards which expire in tax years 2018 through 2023, if not utilized. We have aggregate net operating loss carryforwards for California state tax purposes of $21.3 million which expire in tax years 2006 through 2023, if not utilized. We also had separate federal and state research and development tax credits of $0.4 million.

Comparison of Years Ended December 31, 2001 and 2002

Revenue

			Year Ended December 31, 2001			Year Ended December 31, 2002			% Change 2001 to 2002
			(in millions, except percentages)
Retail revenue			$	15.1		$	20.4		35.2	%
	Percentage of total revenue			71.9	%		65.7	%
Business revenue			$	6.7		$	10.8		62.3
	Percentage of total revenue			31.8	%		34.9	%
Stock-based sales discounts			$	(0.8	)	$	(0.2	)	*
	Percentage of total revenue			(3.7	)%		(0.6	)%

		Total revenue	$	21.0		$	31.0		48.0	%

* Percentage not meaningful.

The growth of $5.3 million in retail revenue was attributable to a 70.9% increase in the number of units sold, offset in part by a decrease in average unit sales price of 20.8%. Growth in units sold resulted in a $10.7 million increase in retail revenue, offset in part by a $5.4 million decrease due to price declines. We believe that the volume increase was primarily due to shifting in 2002 our booksellers located in the United States and Canada from a model under which they fulfilled all orders placed on our consumer website through our distribution center to a model under which they ship directly to end customers in those countries. This shift resulted in reduced shipping and handling costs, allowing us to reduce prices, which we believe resulted in increased sales volume.

The growth of $4.1 million in business revenue was attributable to an 84.1% increase in the number of units sold. $1.5 million of this increase was attributable to sales growth from existing business customers, $2.2 million resulted from the full-year impact of new business customers acquired in 2001, and $0.4 million was due to our acquisition of new business customers in 2002.

Sales outside of United States and Canada represented 7.5% of our total revenue in 2001 and 9.0% of our total revenue in 2002.

Gross Profit

			Year Ended December 31, 2001			Year Ended December 31, 2002			% Change 2001 to 2002
			(in millions, except percentages)
Retail gross profit			$	4.8		$	4.8		1.3	%
	Retail gross margin			31.6	%		23.6	%
Business gross profit			$	1.1		$	2.9		161.0
	Business gross margin			18.8	%		27.1	%

Total gross profit			$	5.9		$	7.7		31.4	%

		Total gross margin		28.0	%		24.8	%

The decline in total gross margin and the decline in retail gross margin was due to our decision to shift our booksellers located in the United States and Canada from a model under which they fulfilled all orders placed on our consumer website through our distribution center to a model under which they ship directly to end customers in those countries. Primarily as a result of this shift, the retail average cost per unit declined 11.7% from 2001 to 2002, while the retail average selling price per unit decreased 20.8%.

The increase in business gross margin was primarily due to a decrease in equity based sales discounts. The business average selling price per unit (excluding stock-based sales discounts) decreased 11.8% in 2002, which was offset by a decrease in business average cost per business unit of 11.8%.

Operating Expenses

			Year Ended December 31, 2001			Year Ended December 31, 2002			% Change 2001 to 2002
			(in millions, except percentages)
Marketing and sales			$	3.8		$	3.9		2.3	%
	Percentage of total revenue			18.3	%		12.6	%
Operations			$	10.2		$	8.8		(14.3	)
	Percentage of total revenue			48.8	%		28.2	%
General and administrative			$	4.1		$	2.1		(49.3	)
	Percentage of total revenue			19.4	%		6.6	%
Stock-based compensation			$	0.6		$	0.1		(88.7	)
	Percentage of total revenue			2.8	%		0.2	%
Amortization of goodwill and other intangible assets and impairment of goodwill			$	1.3		$	—		(96.9	)
	Percentage of total revenue			6.0	%		*	%

		Total operating expenses	$	20.0		$	14.9		(25.6	)%

Percentage of total revenue				95.3	%		47.7	%

* Percentage not meaningful.

The increase in marketing and sales expense was primarily due to increased spending on marketing programs of $0.4 million, offset in part by headcount reductions in the third and fourth quarters of

2001 and in each quarter of 2002 resulting in lower salary, benefits, rent and severance costs of $0.3 million.

Operations expense decreased $1.5 million due to lower salary, benefits, rent and severance costs resulting from headcount reductions in the second and third quarters of 2001 and in each quarter of 2002. These savings were offset in part by increases in other operations expenses of $0.1 million.

The decrease in general and administrative expense was primarily due to $1.0 million in lower facilities and employee-related costs due to the closure of our U.K. office in the fourth quarter of 2001, and $0.5 million in lower costs associated with headcount reductions that commenced in 2001. Lower bad debt expense of $0.3 million, and legal, audit and tax expenses of $0.2 million also contributed to the decrease in general and administrative expense.

Stock-based compensation declined due to fewer employee stock option grants in 2002 as compared to 2001, and a lower estimated price per share of common stock on average in 2002 compared with 2001, offset in part by cancellation of stock options in connection with employment terminations.

In 2001, we amortized $1.1 million of goodwill associated with our acquisition of Bibliocity. In 2002, we adopted SFAS No. 142 which requires that any remaining goodwill is evaluated at least annually for impairment, rather than being amortized. In 2001, we determined that our goodwill associated with two acquisitions completed in the fourth quarter of 1998 and the first quarter of 2000 had been impaired and recorded a charge of $0.2 million. There was no goodwill impairment recorded in 2002.

Quarterly Results of Operations

The following tables set forth our unaudited quarterly results of operations data for the nine most recent quarters ended March 31, 2004, as well as such data expressed as a percentage of our revenue for the periods presented. The information in the table below should be read in conjunction with our financial statements and the notes thereto included elsewhere in this prospectus. We have prepared this information on the same basis as the financial statements and the information includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair statement of our financial position and operating results for the quarters presented. Our quarterly operating results have varied substantially in the past and may vary substantially in the future. You should not draw any conclusions about our future results from the results of operations for any particular quarter.

			Three Months Ended
			Mar. 31, 2002			June 30, 2002			Sept. 30, 2002			Dec. 31, 2002			Mar. 31, 2003			June 30, 2003			Sept. 30, 2003			Dec. 31, 2003			Mar. 31, 2004
			(in thousands, except per share data)
Statements of Operations Data:
Revenue:
Product revenue			$	5,739		$	7,362		$	8,285		$	9,836		$	10,350		$	10,025		$	11,799		$	13,282		$	13,830
	Stock-based sales discounts			(178	)		—			—			—			—			—			—			—			—

		Total revenue		5,561			7,362			8,285			9,836			10,350			10,025			11,799			13,282			13,830
Cost of product revenue				3,830			5,786			6,236			7,486			8,562			8,029			9,523			10,668			11,144

Gross profit				1,731			1,576			2,049			2,350			1,788			1,996			2,276			2,614			2,686

Operating expenses:
	Marketing and sales(1)			899			939			1,114			973			908			887			909			964			1,047
	Operations(1)			2,194			2,376			2,112			2,083			1,739			1,636			1,625			1,692			1,661
	General and administrative(1)			575			451			547			486			509			466			472			477			534
	Stock-based compensation			31			54			60			(79	)		66			290			325			399			344
	Amortization of goodwill and other intangible assets			12			11			11			5			9			10			10			10			10
	Impairment of goodwill			—			—			—			—			—			—			—			—			—

		Total operating expenses		3,711			3,831			3,844			3,468			3,231			3,289			3,341			3,542			3,596

Operating loss				(1,980	)		(2,255	)		(1,795	)		(1,118	)		(1,443	)		(1,293	)		(1,065	)		(928	)		(910	)
Interest income				34			29			25			19			15			13			11			11			11
Interest expense				(9	)		(9	)		(6	)		(7	)		(9	)		(13	)		(17	)		(19	)		(15	)
Other income (expense), net				25			21			24			(213	)		(31	)		(2	)		(20	)		(48	)		13

Loss before income taxes				(1,930	)		(2,214	)		(1,752	)		(1,319	)		(1,468	)		(1,295	)		(1,091	)		(984	)		(901	)
Provision for income taxes				4			5			5			5			—			—			—			—			—

Net loss				(1,934	)		(2,219	)		(1,757	)		(1,324	)		(1,468	)		(1,295	)		(1,091	)		(984	)		(901	)
Accretions on redeemable preferred stock				(1,486	)		(1,486	)		(1,486	)		(1,486	)		(1,492	)		(1,492	)		(1,492	)		(1,492	)		(1,528	)
Deemed dividend on Series F preferred stock				—			—			—			—			—			—			—			—			(2,539	)

Net loss applicable to common stockholders			$	(3,420	)	$	(3,705	)	$	(3,243	)	$	(2,810	)	$	(2,960	)	$	(2,787	)	$	(2,583	)	$	(2,476	)	$	(4,968	)

Net loss per common share—basic and diluted(2)			$	(3.06	)	$	(3.28	)	$	(2.84	)	$	(2.44	)	$	(2.55	)	$	(2.38	)	$	(2.20	)	$	(2.09	)	$	(3.59	)

Weighted average common shares outstanding—basic and diluted(2)				1,117			1,131			1,141			1,151			1,163			1,171			1,175			1,183			1,383

(1): Amounts exclude stock-based compensation as follows:

Marketing and sales	$	(22	)	$	(20	)	$	(6	)	$	(54	)	$	(8	)	$	67	$	75	$	85	$	68
Operations		17			19			21			(24	)		36			68		75		61		47
General and administrative		36			55			45			(1	)		38			155		175		253		229

	$	31		$	54		$	60		$	(79	)	$	66		$	290	$	325	$	399	$	344

(2): See Note 2 of Notes to Financial Statements for discussion regarding computation and presentation.

			Three Months Ended
			Mar. 31, 2002		June 30, 2002		Sept. 30, 2002		Dec. 31, 2002		Mar. 31, 2003		June 30, 2003		Sept. 30, 2003		Dec. 31, 2003		Mar. 31, 2004
			(as a percentage of total revenue)
Statements of Operations Data:
Revenue:
	Product revenue		103.2	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
	Stock-based sales discounts		(3.2	)	—		—		—		—		—		—		—		—

		Total revenue	100.0		100.0		100.0		100.0		100.0		100.0		100.0		100.0		100.0
Cost of product revenue			68.9		78.6		75.3		76.1		82.7		80.1		80.7		80.3		80.6

Gross profit			31.1		21.4		24.7		23.9		17.3		19.9		19.3		19.7		19.4

Operating expenses:
	Marketing and sales(1)		16.2		12.8		13.4		9.9		8.8		8.8		7.7		7.3		7.5
	Operations(1)		39.5		32.3		25.5		21.2		16.8		16.3		13.8		12.7		12.0
	General and administrative(1)		10.3		6.1		6.6		4.9		4.9		4.6		4.0		3.6		3.9
	Stock-based compensation		0.6		0.7		0.7		(0.8	)	0.6		2.9		2.8		3.0		2.5
	Amortization of goodwill and other intangible assets		0.2		0.1		0.1		0.1		0.1		0.1		0.1		0.1		0.1

		Total operating expenses	66.8		52.0		46.3		35.3		31.2		32.7		28.4		26.7		26.0

Operating loss			(35.7	)	(30.6	)	(21.6	)	(11.4	)	(13.9	)	(12.8	)	(9.1	)	(7.0	)	(6.6	)
Interest income			0.6		0.4		0.3		0.2		0.1		0.1		0.1		0.1		0.1
Interest expense			(0.2	)	(0.1	)	(0.1	)	(0.1	)	(0.1	)	(0.1	)	(0.1	)	(0.1	)	(0.1	)
Other income (expense), net			0.4		0.3		0.3		(2.2	)	(0.3	)	—		(0.2	)	(0.4	)	0.1

Loss before income taxes			(34.9	)	(30.0	)	(21.1	)	(13.5	)	(14.2	)	(12.8	)	(9.3	)	(7.4	)	(6.5	)
Provision for income taxes			0.1		0.1		0.1		0.1		—		—		—		—		—

Net loss			(35.0	)	(30.1	)	(21.2	)	(13.6	)	(14.2	)	(12.8	)	(9.3	)	(7.4	)	(6.5	)
Accretions on redeemable preferred stock			(26.7	)	(20.2	)	(17.9	)	(15.1	)	(14.4	)	(14.9	)	(12.6	)	(11.2	)	(11.0	)
Deemed dividend on Series F preferred stock			—		—		—		—		—		—		—		—		(18.4	)

Net loss applicable to common stockholders			(61.7	)%	(50.3	)%	(39.1	)%	(28.7	)%	(28.6	)%	(27.7	)%	(21.9	)%	(18.6	)%	(35.9	)%

(1): Amounts exclude stock-based compensation as follows:

Marketing and sales	(0.4	)%	(0.3	)%	(0.1	)%	(0.6	)%	(0.1	)%	0.7	%	0.6	%	0.6	%	0.5	%
Operations	0.3		0.3		0.3		(0.2	)	0.3		0.7		0.6		0.5		0.3
General and administrative	0.7		0.7		0.5		—		0.4		1.5		1.6		1.9		1.7

	0.6	%	0.7	%	0.7	%	(0.8	)%	0.6	%	2.9	%	2.8	%	3.0	%	2.5	%

Discussion of Quarterly Results of Operation

Our revenue generally follows a seasonal pattern that we believe is typical of the overall book industry. As a percentage of total revenue for the year, we have generally had weaker demand in the quarter ending in June when compared to the quarters ending in March, September and December. We expect this pattern to continue. While we have experienced these patterns throughout our operating history, we cannot assure you that the results of any particular future quarter will follow this pattern. In addition to this seasonal pattern, our quarterly results for 2002 and 2003 reflect the following:

•: Beginning in the second quarter of 2002, we required our booksellers located in the United States and Canada to begin shipping directly to our consumer website customers located in those countries. Prior to this change, all books were shipped through our distribution center. This shift resulted in reduced shipping and handling costs, allowing us to reduce prices, which we believe stimulated demand and increased sales volume and our overall revenue.

•: Beginning in the fourth quarter of 2002, but not having its full impact until the third quarter of 2003, we shifted our booksellers to a direct shipment model with respect to sales through certain of our business customers, in particular Barnes&Noble.com, to end customers located in the United States and Canada. This shift also resulted in reduced shipping and handling costs, allowing us to reduce prices, which we believe stimulated demand and increased sales volume and our overall revenue.
•: In the first quarter of 2003, we increased our inventory reserve for obsolete and slow-moving inventory to $1.2 million as of March 31, 2003 from $0.9 million at December 31, 2002 due to the fact that, during the first quarter of 2003, demand for older books remaining in inventory was declining, market prices were falling and our inventory was aging.

Gross margin decreased from 31.1% in the quarter ended March 31, 2002 to 21.4% in the quarter ended June 30, 2002 because of the shift to require booksellers located in the United States and Canada to ship directly to our consumer website customers in those countries. Gross margin decreased from 23.9% in the quarter ended December 31, 2002 to 17.3% in the quarter ended March 31, 2003, primarily due to the increase in our reserve for obsolete and slow-moving inventory in the first quarter of 2003. Since the second quarter of 2003, gross margin has been relatively stable between 19.3% and 19.9% because, during this period:

•: our average unit selling prices have been more stable;
•: we have substantially completed our move of requiring booksellers to ship directly to end customers;
•: our mix of retail revenue and business revenue has generally stabilized; and
•: we have been able to more accurately assess the market price of, and demand for, books purchased by our distribution center.

As a percentage of net revenue, operating expenses have decreased each quarter since the beginning of 2002, except for the second quarter of 2003. This trend is primarily due to the fact that, in terms of absolute dollars, quarterly operating expenses have remained relatively flat during this time period, while net revenue has generally increased.

The increased net loss in the quarter ended June 30, 2002 compared with the immediately preceding quarter resulted primarily from lowering our prices prior to the change in our fulfillment model in the second quarter of 2002. The increase in loss before income taxes in the quarter ended March 31, 2003 was due primarily to an increase in the reserve for obsolete and slow-moving inventory.

Liquidity and Capital Resources

To date, we have funded our operations primarily through private sales of equity securities and borrowings. As of March 31, 2004 we had raised a total of $63.2 million, net of offering costs, from the issuance of preferred stock. As of March 31, 2004, our sources of liquidity consisted of $3.8 million in cash and cash equivalents and we had working capital of $3.3 million. We have a $1.25 million line of credit with Silicon Valley Bank, which bears interest at the bank's prime rate, plus 2.0%, with a floor of 6.25%. As of March 31, 2004, there were no amounts outstanding under the line of credit and the bank's prime rate was 4.25%. The line of credit will mature on June 29, 2004. We are required to pay a fee of 0.25% per year on the unused portion of the line of credit. The line of credit is secured by a security interest in all of our tangible and intangible assets, and contains financial covenants including maintaining tangible net worth of $1.4 million, subject to upward adjustment by $0.50 for each dollar raised in connection with any equity or subordinated debt financing, including this offering, we complete during the term of the line of credit. We are negotiating with Silicon Valley Bank to convert up to $0.75 million of our existing line of credit to a term loan available for the purchase of used and new equipment, furniture, software and leasehold improvements. Under this proposal, we would be able to draw on this facility through December 31, 2004, with minimum advances of $100,000. Each advance would be payable in 30 monthly payments of principal plus interest, subject to all other terms and conditions under the existing line of credit. We expect to enter into a new line of credit by the end of May 2004 and to let our existing line of credit expire pursuant to its terms on June 29, 2004.

Net cash flow used in operating activities was $8.3 million in 2001, $4.6 million in 2002, and $0.7 million in 2003. Uses of cash were primarily to fund net losses. Working capital was a source of cash in 2001, 2002, and 2003. In 2003, we increased our focus on customer collections resulting in a $0.3 million decrease in accounts receivable. In 2001, 2002 and 2003 and in the first quarters of 2003 and 2004, we reduced inventory. Our inventory turnover rate, as measured by the quotient of our annualized cost of product revenue divided by our average inventory, was 32 as of March 31, 2004. We also extended payment terms with most of our independent professional booksellers, contributing to a $1.5 million increase in accounts payable in 2003. Net cash flow used in operating activities was $0.3 million and $0.9 million in the first quarter of 2003 and 2004, respectively. Working capital was a source of cash in the first quarter of 2003. In the first quarter of 2004, prepaid expenses increased $0.5 million due to costs associated with this offering. Other changes in working capital were sources of cash in the first quarter of 2004.

Net cash flow used in investing activities was $0.8 million in 2001, $0.4 million in 2002, and $0.3 million in 2003. Uses of cash flow for investing activities include capital expenditures for property and equipment. Net cash used in investing activities during the first quarter of 2003 and the first quarter of 2004 relate to capital expenditures of $0.2 million in each period.

Net cash flow provided by financing activities was $4.8 million in 2001 and $0.4 million in 2002. Net cash flow used in financing activities was $0.4 million in 2003. In 2001, cash from financing activities primarily consisted of net proceeds from the issuance of Series E preferred stock, offset in part by repayments of notes payable. In 2002, net cash provided by financing activities consisted of $0.8 million from borrowings on a line of credit which was offset by debt repayments of $0.5 million. In 2003, net cash used in financing activities consisted of $0.3 million from net payments on lines of credit and $0.2 million in repayments of debt. Net cash used in financing activities of $0.4 million in the first quarter of 2003 was primarily due to the repayment of debt under a prior line of credit. Net cash provided by financing activities in the first quarter of 2004 consisted of net proceeds from the issuance of Series F preferred stock and proceeds from the exercise of employee stock options, offset in part by the repayment of our line of credit with Silicon Valley Bank.

We lease our facilities under operating lease agreements that expire in 2006. We also lease equipment under operating and capital lease agreements that expire at various dates through 2007. The following presents our prospective future lease payments under these agreements (in thousands):

Year Ended December 31,	Capital leases		Equipment		Total
2004	$	92	$	174	$	266
2005		90		166		256
2006		67		80		147
2007		3		—		3

Total minimum lease payments	$	252	$	420	$	672

We believe that we have sufficient cash and available borrowings under our line of credit with Silicon Valley Bank to meet our operating and capital requirements for at least the next twelve months. Long-term, we may require additional funds to support our working capital requirements or for other purposes and may seek to raise additional funds through public or private equity or debt financing or from other sources. We cannot assure you that additional financing will be available on acceptable terms, or at all.

If adequate funds are not available to satisfy either short- or long-term capital requirements, we might be required to limit our operations significantly and our business might fail.

Quantitative and Qualitative Disclosures about Market Risk

We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of cash and cash equivalents, trade accounts receivable, accounts payable and long-term obligations. We consider investments in highly liquid instruments purchased with a remaining maturity of 90 days or less at the date of purchase to be cash equivalents. Our exposure to market risk for changes in interest rates relates primarily to our short-term investments and short-term obligations; thus, fluctuations in interest rates would not have a material impact on the fair value of these securities.

At March 31, 2004, we had $3.8 million in cash and cash equivalents. A hypothetical 10% increase or decrease in interest rates would not have a material impact on our earnings or loss, or the fair market value or cash flow of these instruments.

Effect of Recent Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets". Statement of Financial Accounting Standard (SFAS) No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and for long-lived assets to be disposed of. We adopted SFAS No. 144 on January 1, 2002. The initial adoption of SFAS No. 144 did not have a significant impact on our reporting for impairment or disposals of long-lived assets.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which supersedes Emerging Issues Task Force Issue (EITF) No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when the costs are incurred rather than at the date of a commitment to an exit disposal plan. Costs covered by SFAS No. 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operations, plant closing, or other exit or disposal activity. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a significant impact on our consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirement for Guarantees, Including Indirect Guarantees and Indebtedness of Others," an interpretation of FASB Statements No. 5, 57, and 107, and rescission of FIN 34, "Disclosure of Indebtedness of Others." FIN 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor's obligation does not apply to product warranties or to guarantees accounted for as derivatives. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, while the disclosure requirements are effective for financial statements for interim or annual periods ending after December 15, 2002. The adoption of this interpretation did not have a significant impact on our consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee

compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure provisions are effective for interim periods beginning after December 15, 2002. We continue to account for stock-based compensation using the intrinsic value method in accordance with the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees," as allowed by SFAS No. 123. As a result, the adoption of SFAS No. 148 did not have any impact on our consolidated financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We do not have any ownership in any variable interest entities as of December 31, 2002. We will apply the consolidation requirement of FIN 46 in future periods if it should own any interest in a variable interest entity.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures financial instruments with characteristics of both debt and equity and requires an issuer to classify the following instruments as liabilities in its balance sheet: (1) a financial instrument issued in the form of shares that is mandatorily redeemable and embodies an unconditional obligation that requires the issuer to redeem it by transferring its assets at a specific or determined date or upon an event that is certain to occur; (2) a financial instrument, other than an outstanding share, that embodies an obligation to replace the issuer's equity shares, or is indexed to such obligation, and requires the issuer to settle the obligation by transferring assets; and (3) a financial instrument that embodies an unconditional obligation that the issuer must settle by issuing a variable number of equity shares if the monetary value of the obligation is based solely or predominantly on (a) a fixed monetary amount, (b) variations in something other than fair value of the issuer's equity shares, or (c) variations inversely related to changes in the fair value of the issuer's equity shares.

In November 2003, The FASB issued FASB Staff Position No. 150-3, which deferred the effective dates of applying certain provisions of SFAS No. 150 related to mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests for public and nonpublic entities or public entities, SFAS No. 150 is effective for mandatorily redeemable financial instruments entered into or modified after May 31, 2003 and is effect for all other financial instruments as of the first interim period beginning after June 15, 2003.

For mandatorily redeemable noncontrolling interests that would not have to be classified as liabilities by a subsidiary under the exception in paragraph 9 of SFAS No. 150, but would be classified as liabilities by the parent, the classification and measurement provisions of SFAS No. 150 are deferred indefinitely. For other mandatorily redeemable noncontrolling interests that were issued before November 5, 2003, the measurement provisions of SFAS No. 150 are deferred indefinitely. For those instruments, the measurement guidance for redeemable shares and noncontrolling interests in other literature shall apply during the deferral period.

The convertible redeemable preferred stock does not meet the definition of a mandatorily redeemable financial instrument and, upon completion of this offering, all of our preferred stock will be converted into common stock. As a result, the adoption of SFAS No. 150 did not have any impact on our consolidated financial statements.

BUSINESS

OVERVIEW

Alibris operates an online marketplace for used and hard-to-find books. We use the Internet and our specialized technology and logistics capabilities to aggregate this highly fragmented market by bringing buyers and sellers together. Our selection of over 40 million books is supplied primarily by our international network of over 5,000 professional independent booksellers. We provide these independent booksellers with specialized inventory management, logistics and distribution services to assist them in increasing their sales volume. Additionally, we use our knowledge of the used and hard-to-find book market to selectively purchase or consign low-cost book inventory from retailers, publishers, non-profit organizations and liquidators, which we resell to our retail and business customers.

We maintain multiple sales channels through which books are sold. We provide consumers one of the largest selections of book titles on the Internet through our website, www.alibris.com. In addition, we enable libraries to meet their special collections and replacement needs through our library website. We also maintain business relationships with online and traditional book retailers and wholesalers, including several of the largest online and traditional book retailers such as Amazon.com, Barnes&Noble.com and Borders, which use us to supply used and hard-to-find books to their customers.

Alibris has built a strategic position in the used and hard-to-find book market by bringing together a broad selection and multiple sales channels. We have developed a powerful data architecture that enables us to classify supply, demand and price information associated with our sellers and our selling activities, and in the process we have developed deep market intelligence. This allows us to offer inventory management and pricing services to our sellers, effectively purchase and consign inventory, and efficiently market to our customers. In addition, our logistics services enable our distribution system to aggregate supply from thousands of sellers and distribute products through multiple sales channels. This allows us to satisfy the differing logistics needs of our many suppliers and business customers.

INDUSTRY OVERVIEW

Books are available through a wide variety of stores, catalogs and websites. Book purchasing lends itsel