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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 Form 10-K

Commission file number 000-51624

Dover Saddlery, Inc.

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code:

(978) 952-8062

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes £ No R

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes £ No R

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES   o     NO   R

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R

The aggregate market value of common stock held by non-affiliates of the registrant as of the close of the last business day of the registrant’s most recently completed second fiscal quarter was $12,880,007.

Shares outstanding of the Registrant’s common stock at March 25, 2014: 5,351,398.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Proxy Statement for the Annual Meeting of Stockholders of Dover Saddlery, Inc. held on May 7, 2014 which were filed with the Securities and Exchange Commission within 120 days after December 31, 2013, are incorporated by reference in Part III of this Form 10-K.

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DOVER SADDLERY, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2013

EX-23.11                                            Consent of McGladrey LLP

EX-31.1                                                   Section 302 Certification of CEO

EX-31.2                                                   Section 302 Certification of CFO

EX-32.1                                                   Section 906 Certification of CEO and CFO

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PART I

Item 1.  Business.

This Annual Report on Form 10-K, including the following discussion, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve substantial risks and uncertainties. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, the words “projected”, “anticipated”, “planned”, “expected”, and similar expressions are intended to identify forward-looking statements. In particular, statements regarding retail store expansion and business growth are forward-looking statements. Forward-looking statements are not guarantees of our future financial performance, and undue reliance should not be placed on them. Our actual results, performance or achievements may differ significantly from the results, performance and achievements discussed in or implied by the forward-looking statements. Factors that could cause such a difference include material changes to Dover Saddlery, Inc.’s business or prospects, in consumer spending, fashion trends or consumer preferences, or in general political, economic, business or capital market conditions and other risks and uncertainties, including but not limited to the other factors that are detailed in “Item 1A. Risk Factors.” See also “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We disclaim any intent or obligation to update any forward-looking statements.

The Company

Dover Saddlery, Inc., a Delaware corporation (the “Company”), is a leading specialty retailer and the largest omni-channel marketer of premium, equestrian products in the U.S. For over 37 years, Dover Saddlery has been a premier upscale brand in the English-style riding industry. We sell our products through an omni-channel strategy, including direct and retail. This omni-channel strategy has allowed us to use catalogs and our proprietary database of over two million names of equestrian enthusiasts as a primary marketing tool to increase catalog sales and to drive additional business to our e-commerce websites and retail stores.

The Company offers a comprehensive selection of products required to own, ride, train and compete with a horse, selling from under $1.00 to over $10,000 per product.  The Company’s equestrian product line includes a broad variety of separate items such as saddles, tack, specialized apparel, footwear, horse clothing, horse health and stable products. Separate reporting of the revenues of these numerous items is not practical.

The Company has historically focused on the English-style riding market. The Company is known for providing the highest quality products for English-style riding, including premier brands such as Ariat, Grand Prix, Mountain Horse, Pessoa and Pikeur. The Company offers what we believe is the largest selection of exclusive and semi-exclusive equestrian products in the industry. To further broaden our offerings, the Company began selling into the Western-style riding market in 2002 under the Smith Brothers name.

The Company’s management team is highly experienced in both the direct and retail channels with an average of more than 37 years of experience in the equestrian business. Since Stephen Day acquired an ownership interest in the Company and joined as the Company’s President and Chief Executive Officer, he and the rest of the management team have grown annual revenues from $15.6 million to $93.8 million from 1998 through 2013. Prior to joining the Company, Mr. Day was responsible for building the only other national English-style equestrian products direct marketing and multi-unit retail company, State Line Tack.

The Company has positioned itself to capitalize on the synergies of adding a retail market channel to our direct market channel, consisting of catalogs and the Internet.  By marketing our products across integrated, multiple shopping channels, we have strengthened our brand visibility and brand equity, expanded our customer database and increased revenues, profits and market share. While our catalog has been our primary marketing vehicle to increase Internet and store traffic, each of our channels has reinforced the other and generates additional customers.

Through the Company’s subsidiaries, as of December 31, 2013, the Company operates twenty-one retail stores under the Dover Saddlery brand and one retail store under the Smith Brothers brand. We have identified additional market locations throughout the U.S., which we believe are attractive for our planned retail store expansion and can allow us to capitalize on the highly fragmented nature of the retail equestrian products market and to take advantage of our strong brand name recognition. These additional locations have been identified using our proprietary, mathematical, store-optimization model, which selects the locations nationwide with the strongest potential and optimizes distances between stores to enhance revenue potential. Our current targets are based on an optimization model of 50 locations, each utilizing one of three different store formats,

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depending on the location and revenue potential of the area. We believe that our proprietary, mathematical, store-optimization model assists us in locating potential retail sites and gives us a competitive advantage in finding optimal new store locations.

Based on our experience to date with opening new retail stores in areas where we have a high level of existing direct customers, as well as the experience of other omni-channel retailers, we believe that expanding the number of retail store locations and focusing on our omni-channel strategy are keys to our continued success.  In 2013, the Company opened four additional retail stores; going forward the Company intends to continue its store expansion campaign and has indentified additional locations for consideration.

The Company’s mission is to grow our business by providing the most comprehensive offering of the highest quality and most technically advanced equestrian tack, specialized apparel, horse care and stable products to serious equestrians, with a profitable and efficient operating model.

Our History

The Company was founded in 1975 by Jim and David Powers who were top-ranked, English riding champions on the U.S. Equestrian team. Jim Powers was also a member of the 1972 U.S. Olympic equestrian team. The brothers aimed to bring their unique understanding of higher level equestrian competitive needs to better serve the industry’s customers. As a result of their focus on quality and premium positioning for over 37 years, Dover Saddlery earned its reputation as a premier, upscale brand in the English riding industry. The Powers opened the Wellesley, MA retail store in 1975 and began catalog operations in 1982.

By 1998, revenue had grown to approximately $15.6 million. In September 1998, Stephen Day, Dover’s President and Chief Executive Officer and a veteran of the equestrian products, direct marketing industry, and certain other new investors took a controlling interest in Dover. We launched our main website, www.doversaddlery.com, in 2000. In 2001, we moved our headquarters to Littleton, MA, into a 68,000 square foot warehouse and office facility. Our second retail location under the Dover Saddlery name was opened in Hockessin, DE in 2002.

The Company’s management team identified the large Western-style equestrian market as a growth opportunity and, in 2002, acquired the Smith Brothers catalog and website, www.smithbrothers.com. In 2003, we acquired rights in the Miller’s Harness brand for use in catalog and Internet sales to target entry-level and lower-cost equestrian products customers. In 2011, we stopped marketing the Miller’s brand.  In 2004, we opened a Smith Brothers store in Denton, TX.

In April 2004, we expanded our Littleton, MA warehouse and office facility to 100,000 square feet and in April 2005, opened our third Dover Saddlery store in Plaistow, NH.

In June 2006, we acquired Dominion Saddlery and over the next nine months, remodeled, expanded, and converted Dominion’s four stores into Dover Saddlery stores.  In September 2006, we opened our Hunt Valley, MD store.

In 2007, the Company opened four Dominion stores under the Dover brand, which included the Chantilly, VA, Charlottesville, VA, Lexington, VA and the Crofton, MD stores.

In 2008 and 2009, the Company opened three stores and one store, respectively, under the Dover brand.  These stores included Dallas, TX, Branchburg, NJ, Alpharetta, GA and North Kingstown, RI.  No stores were opened in 2010.

In 2011, the Company opened two stores under the Dover brand in Parker, CO and Libertyville, IL.

In 2012, the Company opened three stores under the Dover brand in Warrington, PA, Medina, MN and Raleigh, NC.

In 2013, the Company opened four stores under the Dover brand in Huntington, NY, Winter Park, FL, Austin, TX and Charlotte, NC. As of December 31, 2013, we operated twenty-one stores under the Dover Saddlery brand and one store under the Smith Brothers brand.

Competitive Strengths

The Company believes that we are uniquely positioned in the equestrian tack, specialized apparel and horse care and stable products industry to grow through our omni-channel strategy. We believe that we have numerous competitive strengths, including:

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Experienced Management with a Track Record of Growth and Profitability:  The Company was founded in 1975 and has over 37 years of operating history. Stephen Day joined the Company after successfully building and growing another equestrian products catalog and retailer, State Line Tack. Our management team has extensive experience in direct marketing and retail as well as an average of more than 37 years of experience in the equestrian products business. Since Stephen Day became president and chief executive officer in 1998, we have grown annual revenues from $15.6 million to $93.8 million.

Established Brand in English-Style Riding Equipment and Apparel:  The Company is known for offering the highest quality products, the most comprehensive selection and excellent customer service. Since our founding over 37 years ago, we have built a reputation with a large and growing following in the equestrian products marketplace. Dover Saddlery is the only nationally recognized retail, omni-channel brand in the English-style equestrian products industry, and we believe our Dover Saddlery brand is a significant asset as we continue our retail store expansion and omni-channel growth strategy.

Leading Equestrian Products Retailer of Quality Tack:  With over $93.8 million in 2013 revenues, we believe we hold the largest market share among premium equestrian products retailers for equestrian tack and specialized equestrian apparel. The Dover Saddlery catalog is known by many customers as a leading source for English-style equestrian products, and the Smith Brothers catalog is a significant retail brand in the Western-style riding market.

Large, Detailed Customer Database:  The Company believes that our proprietary database is one of the largest and most detailed in the industry. The database contains customers who have purchased from us over the last 25 years, including detailed purchasing history over the last 5 years and demographic information of such customers, and the names and addresses of individuals who have requested our catalogs, as well as other individuals with equestrian interests. This is a key competitive advantage and business-planning tool. It is also a barrier to entry since it could take years and could be very costly to duplicate.

Successful Omni-channel Strategy:  The Company’s omni-channel strategy of using direct and retail market channels has enabled us to capture customer data, achieve operational synergies, provide a seamless and convenient shopping experience for our customers, cross-market our products and reinforce our brand across channels. Through our sophisticated customer database, we have observed that omni-channel customers have bought, on average, nearly three times more products per year than single-channel customers.  To date, we have successfully executed on our strategy with the addition of twenty new stores bringing our Dover branded retail store count to twenty-one and adding a single Smith Brothers branded retail store.

Excellent Customer Service:  The company-wide focus on exceptional customer service is integral to our success. We promote a culture of prompt, knowledgeable and courteous service and strive for a consistent customer experience across both order channels. Over 90% of our customer service and sales representatives are horse enthusiasts. Additionally, our representatives receive ongoing product training from merchandise suppliers and internal product specialists. We also have a policy of offering customers a 100% satisfaction guarantee. We believe that our well-trained, knowledgeable staff and our historical ability to fill approximately 97% of the items ordered within an average of 1.5 business days in 2013 from our in-stock inventory are some of the reasons why we have had historically low return rates and high repeat customer rates.

Attractive Customer Demographics:  Dover Saddlery customers are primarily affluent females with a passion for the English-style riding sport. We believe them to be discerning, luxury-oriented customers who often choose to buy from us because of the high quality offering and prestige of owning the premier brands. Based on demographic data available to us, we believe that more than two-thirds of households that own horses have incomes above the national median household income of $51,900. Our customer base has been very loyal as demonstrated by high repurchase rates.

Significant Barriers to Entry:  The Company enjoys significant barriers to entry including substantial costs of developing a useful customer database, efficient merchandising and fulfillment infrastructure, breadth of product offering and in-stock inventory levels, as well as the costs and time involved in building customer trust and brand recognition. The investments we have made in our brand, our customer database and proprietary, mathematical, store-optimization model and rapid inventory replenishment set us apart from others in the industry.

Highly Fragmented Equestrian Products Market:  The current marketplace for equestrian products is highly fragmented and mostly consists of small, one-location tack shops. There are approximately 10,000 different retailers in the U.S. selling equestrian products. Although there are a number of places to find equestrian products, there are no large companies, other than Dover Saddlery, focused on the English-style equestrian products market with any significant number of retail store locations since State Line Tack closed its retail operations in 2007.  We bring a level of merchandising, marketing, on-hand inventory and operational discipline that is unique in the industry.  We plan to apply these disciplines to confront the very significant competition that we face in each of our local markets.

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Broad and Distinctive Selection of High Quality, Need-based Products at Competitive Prices with Rapid Order Fulfillment Capability:  The Company has feature-rich, need-based, functional offerings encompassing virtually every product necessary to own, ride, train and compete with a horse. We differentiate ourselves from our competition by our vast breadth and depth of inventory.  We offer products ranging from entry-level to premium brands. We carry premium brands, private label and non-branded products to meet the broad range of customer expectations and needs. Because a percentage of our products are characterized as “need-based” for the continued care of a horse, we believe that this contributes to a high degree of predictable buying patterns by our customers. In addition, approximately 85% of our products do not change from one year to the next.

The Company’s large inventory has allowed us to ship approximately 97% of the items ordered within an average of 1.5 business days in 2013. We are also able to ship any product we offer to our retail stores on a rapid replenishment basis, effectively increasing our retail store inventory to match the assortment and depth that is available from our catalogs. This provides our customers with the ability to walk into any of our retail stores and access our entire product offering. Competitors who maintain only one or even a few stores are unable to match the breadth, depth and availability of our $23.6 million in total inventory.

Growth Strategies

Having established ourselves as the largest omni-channel marketer in the premium equestrian products market, we are continuing our strategy to capitalize on our strong brand equity, take advantage of our comprehensive customer database, achieve operational synergies, cross market products and provide a seamless and convenient shopping experience across channels. We have observed that our omni-channel customers have bought, on average, nearly three times more product per year than single-channel customers, and, therefore, an omni-channel model is a key part of our strategy to grow our revenues, profits and market share. Our growth strategy includes several key components.

Open Dover Saddlery Retail Stores in Targeted Locations:  As of December 31, 2013, the Company operated twenty-one Dover Saddlery branded stores targeted at the English-style, riding segment and one Smith Brothers branded store targeted at the Western-style, riding segment. The equestrian products market is estimated at $5.8 billion, yet no national, equestrian products, specialty retail chains exist and there are only a limited number of small, regional, multi-unit English equestrian products retailers. In addition to our 21 existing store sites, we have identified an additional 29 locations throughout the U.S., which we believe are attractive for our retail store expansion and will allow us to capitalize on the highly fragmented nature of the retail equestrian products market and our strong brand name recognition. These locations have been identified using our proprietary, mathematical, store-optimization model, which selects the locations nationwide with the strongest potential and optimizes distances between stores to enhance revenue potential. The model optimizes distances between stores with concentrations of current customers. Our marketing efforts have provided detailed customer data regarding location and sales performance that has given us the ability to plan and perform extensive site analysis. Our current targets are based on an optimization model of 50 locations, each utilizing one of three different store formats, depending on the location and revenue potential of the area. We believe that our proprietary, mathematical, store-optimization model, which assists us in locating retail sites, will continue to give us a competitive advantage in finding attractive locations.

Expand Our Direct Market Channel:  The Company’s catalog business drives traffic to our Internet store and retail market channel. We plan to expand our direct market channel business through marketing campaign initiatives to existing and new customers. We seek to increase the number of customers and prospects that receive a catalog, increase the numbers of customers buying through both market channels, and increase the amount each customer spends for our merchandise through the continued introduction of new products and promotional strategies. We plan to continue to utilize web-based opportunities with promotional, targeted e-mail programs, refer-a-friend programs, on-line search engines and shopping comparison websites. We intend to continue our practices of using banner advertising on qualified equestrian websites, of having links to and from qualified equestrian websites, and of sending prospect e-mails to qualified equestrian e-mail lists.

Enhance Our Product Mix:  The Company carries premium branded, private label and non-branded equipment and accessories. We believe we have the largest collection of exclusive and semi-exclusive brands in the industry. We continually seek to expand our product offering to meet the needs of our customers and will seek to expand and enhance our product mix to increase revenues and the profitability of the business. Currently, we offer a broad selection of products under the Dover and other trademarks. We believe that these products offer a great value to our customers who have come to trust our quality.

Expand Further in the Western-Style Equestrian Products Market:  While it is difficult to track industry data, the number of Western-style riders is believed to be at least four times the number of English-style riders in the U.S. We entered the Western-style equestrian products market through our acquisition of Smith Brothers in 2002 and opened a Smith Brothers retail store in 2004. We continue to assess expansion prospects for direct marketing and the number of prospective retail stores for the Western-style riding market.

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2013 Accomplishments

In pursuit of our goals as the largest equestrian retailer of quality tack and specialty riding apparel, we accomplished the following in 2013:

·                  Continued to enhance and expand the Dover Saddlery product offering

·                  Opened four Dover branded retail locations in Huntington, NY, Winter Park, FL, Austin, TX and Charlotte, NC

·                  Increased total sales by 8.7% with retail market channel sales increasing by 17.7%

·                  Re-launched and enhanced the Smith Brothers e-commerce website

Industry

Equestrian Products Market

The North American market for equestrian tack, saddles, specialized apparel, grooming and healthcare products, horse clothing, equestrian-related media, other horse supplies and services is estimated by the American Horse Council at $38.8 billion for 2005. Although studies on the equestrian industry are informal, according to the Fountain Agricounsel USA Horse Industry Business Report 2004, in 2003, the total industry sales for the markets we target were $5.8 billion. A 2005 American Horse Council survey estimated that there are 9.2 million horses in the U.S.

According to American Sports Data, over 5.6% of the U.S. population, or 16.8 million people, ride horses with an average of 21.7 participating days per year, which exceeds participation in other popular outdoor sports, such as downhill skiing at 4.6% and 6.3 days and mountain biking at 2% and 18.1 days. There are many indicators that point to the continued growth of the equestrian products industry. A study by NFO Research indicated that 10% of U.S. households are involved in riding, an additional 5% were involved at one time and 18% would like to become involved. There has also been an increase in nationally televised programming of equestrian sports.  NBC now broadcasts the International 3-day event from Lexington, KY (called Rolex) each year and in 2010, showed over 16 hours of events from the World Equestrian Games.  The World Equestrian Games were held for the first time in the United States in September 2010.  In 2012, equestrian sports was a part of the summer Olympics, hosted in London, England, which included televised team and individual events for jumping, dressage and eventing.

There are very few dominant manufacturers and distributors and no dominant retailers in the equestrian products industry, creating a highly fragmented market. Of the approximately 10,000 U.S. equestrian products retailers, we believe that a majority of them are too small to develop multiple sales channels, deep inventories, automated inventory-control systems, extensive customer databases and brand equity, and are, therefore, unable to effectively control a significant portion of market share.

Direct Marketing

Direct marketing is a fast-growing, dynamic industry that includes sales generated through direct mail and the Internet.

Sales from catalog retailing grew rapidly during the 1990s at an annual rate of approximately 10% — twice the rate of conventional retailing. This growth was driven by several factors, including the emergence of strong direct marketing companies, such as L.L. Bean, consumers’ busier lifestyles, due in part to the substantial increase in the number of professional women; and the recent introduction of specialty catalogs tailored to niche audiences combined with more sophisticated mailing and customer targeting techniques.

Established catalogers enjoy significant barriers to entry including substantial costs of developing useful customer databases, efficient merchandising and fulfillment infrastructure and consumer trust and brand recognition. The expense of acquiring, perfecting and maintaining an extensive and accurate customer database specific to each company’s target market is expensive, and such a database can take years to build to levels competitive with established catalogs.

The Internet is a key driver of targeting customers in our direct market channel. Industry research estimates that online sales in the U.S. reached $263.3 billion in 2013.  This was an increase of 16.9% from 2012.  As the price of personal computing declines and Americans become more technologically savvy, many are choosing to browse and buy over the Internet including access to smart phones and tablets. Consumers are now turning to shopping via their cell phones and tablets, otherwise known as mobile commerce.

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We believe that a large, highly fragmented industry with affluent, passionate horse enthusiasts presents us with the opportunity to use our reputation and omni-channel strategy to increase our market share and revenues in the future.

Customers

The Company’s English riding customers are primarily affluent females with a passion for the English riding sport. We believe them to be discerning, luxury-oriented customers who often choose to buy from us because of the high quality offering and prestige of owning the premier brands. Based on demographic data from the American Horse Council (AHC), we believe that more than two-thirds of households that own horses have incomes above the national median household income of $51,900 as reported by the 2013 U.S. Census Bureau. Our customer database provides for each customer a summary of the recency, frequency and monetary value of that customer’s orders as well as a detailed listing of each item the customer has ordered for the past five years. Our customers have been very loyal as demonstrated by high repurchase rates.

Our Omni-Channel Strategy

The Company has established itself as the largest omni-channel marketer of equestrian tack, specialized apparel, horse care and stable products in the U.S. and plans to continue our omni-channel retail strategy to capitalize on strong brand equity and utilize our customer database. This omni-channel strategy enables us to capture customer data, achieve operational synergies, provide a seamless and convenient shopping experience for our customers, cross market our products and reinforce our brand across channels. We believe that our strategy is working. Through the data captured by our sophisticated customer database, we have determined that omni-channel customers buy, on average, nearly three times more product per year than customers who only purchase through a single-channel. This is supported by the experiences of other successful omni-channel retailers such as Eddie Bauer and JC Penney. Eddie Bauer’s omni-channel customers spend, on average, approximately six times more than its single-channel customers and JC Penney’s omni-channel customers spend, on average, approximately five times more than its single-channel customers.

Our omni-channel business model has several key elements:

Based on research of other similar omni-channel concepts, we believe that, when mature, the natural channel balance of an omni-channel retailer tends to stabilize with 60% to 80% of the sales coming from the retail market channel. This retail purchasing preference on the part of consumers is even more pronounced in the equestrian industry. Research by Frank N. Magid Associates, Inc. indicates that 80% of tack customers shop at retail stores. Since we currently have just about 46.4% of our total revenues coming from retail stores, we believe that there is significant opportunity to develop our omni-channel strategy and pursue our targeted retail store expansion. See “Retail Store Operations and Expansion”.

Our experience from the Hockessin, DE store has shown that within two years of opening, direct sales from customers within a 30-mile radius of this store exceeded sales levels prior to its opening and led to sales of approximately 150% compounded annual growth over the first two years of operation.

Although our Wellesley, MA store has been in operation for over 37 years, we have maintained an impressive mix of both direct and retail store sales in the area. The direct sales in the area surrounding the store demonstrate that even though we have a retail location, the convenience of omni-channel shopping over the Internet or by catalog has been appealing to our

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customers located within 30 miles of the store. We believe that this provides further support to the potential value created by opening up retail stores in areas that already have a strong customer base.

The Company seeks to continually improve operating efficiencies to benefit our multiple market channels through our integrated planning, order management, fulfillment systems and economies of scale in cross-channel inventory processing and advertising. We continuously strive to enhance our efficiencies to provide a seamless, cross-channel experience to our customers, and achieve greater profitability.

Direct Market Channel

Since we mailed our first catalog in 1982, we have grown our direct market channel to include two separate catalogs and two e-commerce websites. As we continue our plan to expand our retail stores, we expect our retail market channel to stimulate even greater demand for our products, and eventually outstrip the demand from our direct market channel.  However, the direct market channel will continue to be the core component of our brand identity and the driving force behind the customer data utilized to promote each of our market channels.

Our direct market channel generated approximately $50.3 million in revenues in 2013 or 53.6% of our total Company revenues. Our proprietary database contains over two million names.  We expect this database to continue to grow as we open additional retail locations.

Catalog

We mail our catalogs to individuals who have made purchases during the past five years. We also mail catalogs to new prospects obtained through our proprietary database of names we have compiled through sponsorships, trade associations, subscriber lists for equestrian publications, grassroots name gathering efforts, and outside rented lists.

We currently maintain two primary catalogs. The Dover Saddlery catalog caters to the mid to high-end, English-style, equestrian products customer. The Smith Brothers catalog is aimed at the Western-style, equestrian products customer.

Catalogs are sent regularly throughout the year to a carefully selected list of customers. We develop annually four distinct Dover Saddlery catalogs and variations of Smith Brothers catalogs, including a large annual catalog for each market.

Dover Saddlery

Dover Saddlery is the most comprehensive source for the English-style equestrian products market. In addition to the general catalog, the three targeted editions of the Dover Saddlery annual catalog specialize in the dressage, eventing and hunter/jumper segments.

·              Dressage.  This edition introduces the latest in new products for the dressage rider as well as promoting dressage as a form of riding. Dressage is a form of exhibition riding in which the horse performs a pre-programmed ride demonstrating highly schooled training.

·              Eventing.  This edition focuses on the cross-country phase of three day eventing, a triathlon of equestrian sports including dressage, cross-country and show jumping. The specialized saddles and equipment necessary for conditioning and competing the event horse for this endurance test are emphasized in this edition.

·              Hunter/Jumper.  This edition showcases the best saddles and tack used by world-class riders in the hunter/jumper ranks, whose participants jump fences in a stadium-jumping arena. At the highest level, these riders compete in Grand Prix jumping events for prize money of up to $1,000,000 per event.

Smith Brothers

The annual catalog for Smith Brothers is positioned as the “Premier Catalog for the Western Horseman”, and it is one of the more comprehensive offerings in the Western-style equestrian products market. We offer one general edition of the Smith Brothers annual catalog.

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Internet

In July of 2000, we launched our website, www.doversaddlery.com.  In February 2002, we acquired the Smith Brothers website, www.smithbrothers.com.

Our wired and mobile websites are integral to our omni-channel strategy. The websites reinforce our relationship with current catalog customers and are a fast growing source of new customers. New customers acquired through the websites have historically been highly responsive to subsequent catalog mailings and Internet marketing.

Our websites feature our entire product offering and enable us to better market to our customers and visitors by allowing different pages to be automatically shown to different types of individuals. This allows us to segment visitors into smaller, targeted groups, which in turn increases conversion rates from potential buyers to customers. Visitors are able to shop by their riding style, providing them with images of their passion and products suited to their niche.

We plan to continue to utilize web-based marketing campaigns with promotional, targeted e-mail programs, refer-a-friend programs, online search engines, comparison shopping engine and banner advertising.

Retail Store Operations and Expansion

As of December 31, 2013, we operated twenty-one stores under the Dover Saddlery brand and one store under the Smith Brothers brand. We intend to continue to expand our retail store operations going forward, primarily under the Dover Saddlery brand.  We expect favorable retail store leasing costs and the availability of high quality real estate to provide ample store expansion opportunities in 2014 and beyond.  We, therefore, will continue focusing on our site selection efforts and lease negotiations in 2014.

Retail Store Locations

Dover Saddlery

New England

Plaistow, NH

Wellesley, MA

North Kingstown, RI

Mid-Atlantic

Hockessin, DE

Crofton, MD

Hunt Valley, MD

Branchburg, NJ

Chantilly, VA

Charlottesville, VA

Lexington, VA

Warrington, PA

Huntington, NY

Mid-West

Libertyville, IL

Parker, CO

Medina, MN

South

Alpharetta, GA

Dallas, TX

Raleigh, NC

Winter Park, FL

Austin, TX

Charlotte, NC

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Smith Brothers

Denton, TX

Our retail stores carry largely the same product mix as our catalogs and websites to promote convenience and shopping frequency. The broad selection of retail product and the availability of inventory from our warehouse allows for superior customer service. To the extent that a certain item is not physically available at a retail store, store personnel will work with the customer to ensure prompt in-store or home delivery of the item from our fulfillment center, according to the customer’s preference. Each store’s mission is to foster loyalty and provide face-to-face answers to customers’ questions. Sales staff are carefully selected and trained to provide accurate and helpful product information to the customer. In most cases, they are experienced equestrians.

New Retail Store Model

Our proprietary, mathematical, store-optimization model will help us select each store location by projecting sales based on real-time catalog customer purchases surrounding the potential location. Our initial targeted locations will be positioned in key markets exhibiting the highest concentration of current direct sales customers and equestrian enthusiasts. Existing customers within the proposed locations are expected to support and accelerate the maturation curve of new stores. Prior experience with existing stores has demonstrated an increase in the number of catalog customers within stores’ trade areas.

Dover Store Prototype

We have developed three primary prototype store models for nationwide rollout — ‘A’, ‘B’, and ‘C’.

An ‘A Store’ model has approximately 9,000 to 12,000 square feet and assumes an average initial net investment of approximately $1.2 million, including approximately $200,000 of pre-opening costs and $625,000 of inventory.  As of December 31, 2013, we had nine A stores.

A ‘B Store’ model has approximately 4,000 to 6,000 square feet and assumes an initial investment of approximately $0.9 million, including approximately $100,000 in pre-opening expenses and $545,000 in inventory, and is projected to generate approximately the same level of sales per square foot as the A Store model.  As of December 31, 2013 we had two B stores.

A ‘C Store’ model has approximately 3,000 to 4,000 square feet and assumes an average initial net investment of approximately $0.6 million, including approximately $50,000 of pre-opening costs and $440,000 of inventory.  As of December 31, 2013, we had ten C stores.

New stores may be established in existing leased space or newly constructed facilities.

Site Optimization

The Company has developed a proprietary, mathematical, store-optimization model to select locations for new stores. The model continuously optimizes distances between stores within concentrations of current customers and equestrian enthusiasts.  Our proprietary database and procedures in our direct market channel provide detailed customer data regarding location and sales performance, which give us a significant competitive advantage over other traditional equestrian products retailers. This data, combined with our proprietary, mathematical, store-optimization model, helps us accurately and effectively identify markets and target specific locations that maximize potential revenue out of selected markets. Once we identify an optimal location by ZIP code, extensive site analysis follows, including major highway access and real estate considerations, to enhance the profitability potential for our stores.

Marketing

Dover’s brand position is “The Source” for English equestrian tack and apparel.  Utilizing an omni-channel marketing strategy, we sell our products directly to English riders through our stores, on our website, and over the phone.

We collect name, address and email data from our buyers in all channels, as well as many other details about the buyer’s purchase history.  This customer data supports the majority of our marketing strategy as we rely heavily on database marketing methods to drive our business, both in retaining existing buyers and attracting new ones.

Our buyer retention strategy includes email, catalog marketing, and stellar service in all channels. We email several times per week to introduce new products, advertise hot prices on existing products, and invite buyers to shop our closeout deals.

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We also send a series of emails triggered by actions customers take on the website.  Our top buyers receive catalogs monthly ranging from our 364 page full-line catalog to our seasonal and sale catalogs, which vary in page count. Strong vendor relationships support Dover’s wide breadth and depth of products, as well as a superior inventory position.  Dover’s website contains rich content including product videos, enlarged product images, detailed product descriptions and product reviews.  Dover is known for its world-class customer service, through every channel, underscored by our 100% Satisfaction Guarantee – your money back any time for any reason.  Our goal is to dazzle every rider with the experience of buying from Dover, so that they will want to come back again and again.

We acquire new buyers by opening new stores in strategic geographic areas.  Our proprietary new store model utilizes our national buyer database to establish the best zip codes in which to place our new stores.  When a new Dover store comes to town, we kick off the celebration with a VIP party, as well as hosting a grand opening sale throughout the opening weekend.  Fliers and invitations are sent to existing and prospective buyers.

In regions where we have existing stores, or do not have stores, our primary methods of acquiring new buyers are search marketing, catalog prospecting, and email marketing.  These methods of acquisition drive new customers directly to our website, stores, or call center.

In addition to the names and addresses collected from our buyers, we augment our marketing database with contact details of prospective buyers from other sources.  Our “grass-roots” data collection program provides gift certificates to equestrian organizations and events, in exchange for lists of members and event attendees. In this way, not only do we get orders resulting from the distributed gift certificates, we also utilize the data to contact prospective buyers through email and catalog mailings.  This information, as well as data we get from sponsoring major national equestrian associations, is also used to evaluate prospective store locations.

As our business is largely driven through direct marketing, it requires a great deal of both print and digital marketing collateral, which our award-winning creative team produces entirely in-house.  In addition to the layout, production and printing of our catalogs, the creative team is also responsible for writing lengthy, descriptive, keyword-rich copy which our web team uses to optimize search engine marketing.  The glamorous product photography found within our catalogs is also reproduced digitally, in larger format, on our website.  The creative team’s workflow employs the latest digital reproduction technology as well as content and image management systems to ensure the latest content is efficiently replicated across multiple media forms, in support of our omni-channel marketing strategy.

Order Processing and Fulfillment

More than half of the Company’s direct orders are received via the Internet, while the remaining orders are placed by telephone. We operate three customer service call centers located in Littleton, MA, North Conway, NH, and Denton, TX. All of our centers are linked to the same computer and telephone network and share a single customer database that includes a real-time recency, frequency and monetary value summary for each customer as well as a direct link to each customer’s line-item order history over the last five years. The order entry system is also directly linked to our inventory management system to ensure that product availability is real time.

The 100,000 square foot Littleton, MA warehouse and office facility also serves as our order fulfillment center.

Inventory

An additional way that we differentiate ourselves from our competition is through our breadth and depth of inventory. We believe our inventory is deeper than our competitors’, with $23.6 million in on-hand inventory as of December 31, 2013. With our extensive inventory position and rapid fulfillment capability, we were able to fill approximately 97% of the items ordered within an average of 1.5 business days in 2013. Based on our inventory management systems, continuous monitoring of the products we carry and the fact that we carry very few fashion forward products, we have historically had little inventory turn obsolete. Despite the high level of inventory, our goal is to turn warehouse inventory five times per year, and we historically have had no material inventory write-downs.

All of the products that are presented in our catalogs are available online and customers can use our websites to enter orders, shop online and check inventory availability. On average, our type ‘A’ retail stores stock inventory items that represent over 65% of the merchandise sales we make available through our direct market channel. All items are available to customers entering our stores by either direct shipment to a customer’s home or for in-store pickup from our fulfillment center.

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Product Mix and Merchandising

The Company’s feature-rich, need-based, functional products encompassing virtually every product necessary to own, ride, train and compete with a horse. We differentiate ourselves from our competition by our vast breadth and depth of product offerings. We offer products ranging from entry-level price points to the premium high-end, and carry leading brands, niche brands and private label brands to meet the broad range of customer expectations and needs. Our product mix has been relatively consistent over the last five years. We carry the premier names and the most comprehensive offering of the highest quality, broadest range and most technically advanced tack and related gear for serious equestrians. The sales pattern for equestrian products is fairly consistent from year to year. Introductions of new fashions are generally limited, making sales per item relatively more predictable. The low SKU turnover reduces inventory obsolescence and overstock risks.

Competition

The Company competes based on offering a broad selection of high quality products at competitive prices and superior customer service with knowledgeable staff for our customers. We believe that our annual direct sales and breadth of product offering are each significantly larger than that of our closest competitor. We believe that we benefit from significant barriers to entry with our established Dover Saddlery brand and with what we believe to be the industry’s most comprehensive database.

The retail store market for equestrian products is highly fragmented with approximately 10,000 retail equestrian store locations nationwide.  There are no national retail chains.  Moreover, only a few regional multi-outlet stores compete in the market for equestrian products.

Seasonality

The Company experiences seasonal fluctuations in revenue and operating results. Due to buying patterns around the holiday season and a general slowdown during the later part of the summer months, our revenues are traditionally higher in the fourth quarter. In fiscal 2013, we generated 32.3% of our annual revenues during the fourth quarter.

Employees

At December 31, 2013, we had 729 employees; approximately 216 were employed full time. None of our employees are represented by a labor union or are parties to a collective bargaining agreement. We have not experienced any work stoppages and consider our relationship with our employees to be good.

Trademarks and Trade Secrets

The Company’s service marks and trademarks and variations thereon are registered, licensed or are subject to pending trademark applications with the United States Patent and Trademark Office. We believe our marks have significant value, and we intend to continue to vigorously protect them against infringement.

The Company maintains, as trade secrets, our database and our proprietary, mathematical, store-optimization modeling software. We believe that these trade secrets provide a competitive advantage and a significant barrier to competition from equestrian marketers and retailers.

Available Information

The Company electronically files with the United States Securities and Exchange Commission (“SEC”) our annual, quarterly and current reports, amendments to those reports, our proxy statement and annual report to stockholders’, as well as other documents. Our corporate Internet address is www.doversaddlery.com. Our website provides a hyperlink to a third party website, http://investor.shareholder.com/dovr/, through which our SEC filings that we file electronically are available free of charge. We believe these reports are made available as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. We do not provide any information directly to the third party website, and we do not check its accuracy. The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC, 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Copies of these reports can also be obtained from the SEC’s website at www.sec.gov.

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Item 1A.  Risk Factors.

An investment in our common stock involves a high degree of risk. You should carefully consider these risk factors before buying or trading shares of our common stock.  Any such risks may materialize, and additional risks not known to us, or that we now deem immaterial, may arise. In such event, our business, financial condition, results of operations or prospects could be materially adversely affected. If that occurs, the market price of our common stock could fall, and you could lose all or part of your investment.

This Annual Report on Form 10-K includes or incorporates forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the use of the words “believes”, “anticipates”, “plans”, “expects”, “may”, “will”, “would”, “intends”, “estimates”, and other similar expressions, whether in the negative or affirmative. We cannot guarantee that we actually will achieve the plans, intentions or expectations disclosed in the forward-looking statements made. We have included important factors in the cautionary statements below that we believe could cause actual results to differ materially from the forward-looking statements contained herein. The forward-looking statements do not reflect the potential impact of any future acquisitions, mergers or dispositions. We do not assume any obligation to update any forward-looking statements contained herein.

A decline in discretionary consumer spending and related externalities could reduce our revenues.

The Company’s revenues depend to a degree on discretionary consumer spending, which may decrease due to a variety of factors beyond our control. These include unfavorable general business, financial and economic conditions, increases in interest rates, increases in inflation, stock market uncertainty, war, terrorism, fears of war or terrorism, increases in consumer debt levels and decreases in the availability of consumer credit, adverse or unseasonable weather conditions, adverse changes in applicable laws and regulations, increases in taxation, adverse unemployment trends and other factors that adversely influence consumer confidence and spending. Any one of these factors could result in adverse fluctuations in our revenues generally. Our revenues also depend on the extent to which discretionary consumer spending is directed towards recreational activities generally and equestrian activities and products in particular. Reductions in the amounts of discretionary spending directed to such activities would reduce our revenues.

The Company’s customers’ purchases of discretionary items, including our products, may decline during periods when disposable income is lower, or periods of actual or perceived unfavorable economic conditions. If this occurs, our revenues would decline, which may have a material adverse effect on our business.

Material changes in cash flow and debt levels may adversely affect the Company’s growth and credit facilities, require the immediate repayment of all our loans, and limit the ability to open new stores.

During seasonal and cyclical changes in our revenue levels, to fund our retail growth strategy, and to fund increases in our direct business, we make use of our credit facilities, which are subject to maximum balance sheet leverage ratio, minimum debt service charge coverage ratio, minimum current asset ratios, maximum capital expenditures and related covenants.  If we are out of compliance with our covenants at the end of a fiscal period, it may adversely affect our growth prospects, require the consent of our lender to open new stores or in the worst case, trigger a loan default and require the repayments of all amounts then outstanding on our loans.  In the event of our insolvency, liquidation, dissolution or reorganization, the lender under our revolving credit facility and term note would be entitled to payment in full from our assets before distributions, if any, were made to our stockholders.

In order to execute our retail store expansion strategy, we may need to borrow additional funds, raise additional equity financing or finance our planned expansion from profits. Our borrowings may be restricted by financial covenants; or we may also need to raise additional capital in the future to respond to competitive pressures or unanticipated financial requirements. We may not be able to obtain additional financing, including the extension or refinancing of our revolving credit facility, on commercially reasonable terms or at all. A failure to obtain additional financing or an inability to obtain financing on acceptable terms could require us to incur indebtedness at high rates of interest or with substantial restrictive covenants, including prohibitions on payment of dividends.

As a result of the strategic initiatives process that the Company announced in September 2013, or otherwise, we may obtain additional financing by issuing equity securities that will dilute the ownership interests of existing shareholders. If we are unable to obtain additional financing, we may be forced to scale back operations or be unable to address opportunities for expansion or enhancement of our operations.

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Management’s determination that a material weakness exists in our internal controls over financial reporting could have a material adverse impact on the Company.

We are required to maintain internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.  In Item 9A of Part II of the Company’s amended Annual Report on For 10-K/A (as filed with the SEC on June 5, 2013), the Company reported that a material weakness existed in the Company’s internal control over financial reporting, in respect of its accounting for gift card liabilities; and that as a result, management had concluded that as of December 31, 2012, the Company’s disclosure controls and procedures were not effective. The Company has since corrected that prior weakness, and, as reported in Item 9A of Part II of this Annual Report, management concluded that our internal control over financial reporting was effective as of December 31, 2013.

In the event that a material weakness in the Company’s controls arises in the future and is not timely remediated, our business and results of operations could be harmed, we may be unable to report properly or timely the results of our operations and investors may lose faith in the reliability of our financial statements. Accordingly, the price of our securities may be adversely and materially impacted.

The Company’s market is highly competitive, and we may not continue to compete successfully.

The Company competes in a highly competitive marketplace with a variety of retailers, dealers and distributors. The equestrian products market is highly fragmented with approximately 10,000 retail store locations nationwide. Many of these are small businesses that have a loyal customer base that compete very effectively in their local markets. We plan to apply our historic disciplines to confront the significant competition that we face in each of our local markets. We may, therefore, not be able to generate sufficient sales to support our new retail store locations. There are also a significant number of sporting goods stores, mass merchandisers and other better funded companies that could decide to enter into or expand their equestrian products offerings. Liquidating inventory sales by our former competitors may cause us temporarily to lose business and perhaps even to lose customers.  In addition, if our continuing competitors reduce their prices and continue free shipping practices, we may have to reduce our prices in order to compete. We may be forced to increase our advertising or mail a greater number of catalogs in order to generate the same or even lower level of sales. Any one of these competitive factors could adversely affect our revenues and profitability. It is possible that increased competition or improved performance by our competitors may reduce our market share, may reduce our profit margin, and may adversely affect our business and financial performance in other ways.

If the economy experiences a recession or the Company cannot successfully execute our planned retail store expansion, our growth and profitability would be adversely impacted.

As of December 31, 2013, the Company had twenty-two retail stores.  In response to the recent economic recession, we placed on hold for part of 2009 and in 2010 our plan to rapidly increase the number of retail stores and opened only two stores in 2011, three stores in 2012 and four stores in 2013.  A significant percentage of our projected future growth had been expected to be generated from new locations. If we experience delays in opening new stores, fail to select appropriate sites, encounter problems in opening new locations, or have trouble achieving anticipated sales volume in new locations, our growth and profitability will be adversely impacted.  Furthermore, any one or more of the new stores we intend to open may not be profitable, in which event our operating results may suffer.

As the economic recovery continues, our subsequent ability to expand our retail presence depends in part on the following factors:

·              favorable economic conditions;

·              our ability to identify suitable locations in key markets with attractive demographics and which offer attractive returns on our investments;

·              the availability of suitable locations at lease rental rates consistent with our expansion model;

·              our ability to negotiate favorable lease and construction terms for such locations;

·              our ability to execute sale/leaseback transactions on satisfactory terms, if at all;

·              our ability to fund the development and furnishing of new stores may be limited or impaired;

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·              competition for such locations;

·              the timely construction of such retail stores;

·              our ability to receive local and state government permits and approvals in connection with such locations;

·              our ability to attract, train, and retain skilled and knowledgeable store personnel; and

·              our ability to provide a product mix that meets the needs of our customers.

In addition, each retail store is expected to require approximately $600,000 to $1.2 million of capital, including start up costs, leasehold improvements and inventory, and excluding the cost of the real estate. If actual costs are higher than expected or if sales in such stores are lower than expected, we may not be able to open as many retail stores as anticipated or we will need to raise additional capital in order to continue our growth.

Changes in subjective assumptions, estimates and judgments by management resulting from external factors or accounting standards could significantly affect our financial results.

Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, including, but not limited to, revenue recognition, sales returns reserves, gift-card breakage income, inventories, vendor rebates and other consideration, income taxes, litigation, and other contingent liabilities, are highly complex and involve many subjective assumptions, estimates and judgments by our management. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported or expected financial performance. For example, our future performance might be adversely affected by variability in inflation rates of health care costs, resulting from the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, which expands health care coverage to many uninsured individuals and expands coverage to those already insured, and might cause material increases in health care costs or accruals for us and our vendors, that in turn could adversely affect our revenues, margins or both.

Current economic conditions and the global financial crisis may have an impact on our business and financial condition in ways that we currently cannot predict.

Since the recession that started in December 2007 ended in 2009, the domestic economic recovery has been uneven and slow.  Even though unemployment has fallen to 6.7% from 7.8% in the U.S, it is still not clear when a sustained robust economic recovery will begin. The recent historical decrease and any future decrease in economic activity in the United States or in other regions of the world in which we do business could adversely affect our financial condition and results of operations. Continued and potentially increased volatility, instability and economic weakness, together with political instability in emerging markets and potential higher energy and fuels costs and a resulting decrease in discretionary consumer and business spending may result in a reduction in our revenues. We currently cannot predict the extent to which our revenues may be impacted. In addition, financial challenges experienced by our suppliers or distributors could result in product delays and discontinuances, a lack of new products, inventory imbalances and/or cost increases, and less favorable trade credit terms.

The Company’s business may be adversely affected by pricing pressures from fluctuations in energy and/or commodity costs.

Fluctuations in the price, availability and quality of fabrics and other raw materials used to manufacture the Company’s products, as well as the price for labor and transportation have contributed to, and may continue to contribute to, ongoing pricing pressures throughout the Company’s supply chain. The price and availability of such inputs to the manufacturing process may fluctuate significantly, depending on several factors, including commodity costs (such as higher cotton prices), energy costs (such as fuel), inflationary pressures from emerging markets, increased labor costs, weather conditions and currency fluctuations. Any or all of these impacts could have a material adverse impact on the Company’s business, financial condition and results of operations.  We may be unable to pass such price increases along to the Company’s customers and be unable to maintain the Company’s gross margins. In addition, the increase in energy and commodity costs could adversely affect consumer spending and demand for the Company’s products.

The Company may be unable to open new stores and enter new markets successfully.

An important part of the business plan had been to increase our number of stores and enter new geographic markets.  In light of the recent economic recession, the Company placed that plan on hold in 2009 and 2010, but opened two stores in 2011,

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three stores in 2012 and four stores in 2013.  Since the IPO, we had opened fourteen new stores through December 31, 2013 and remodeled, expanded and converted four stores from the Dominion Saddlery acquisition.  If financial and economic indicators forecast sustainable improvement, we plan to open additional stores.  For our growth strategy to be successful, we must identify and lease or buy favorable store sites, hire and train associates and adapt management and operational systems to meet the needs of our expanded operations. These tasks may be difficult to accomplish successfully, and may also be restricted by covenants and conditions in our loan agreements.  If we are unable to open new stores as quickly as planned, our future sales and profits could be materially adversely affected.  Even if we succeed in opening new stores, these new stores may not achieve the same sales or profit levels as our existing stores. Also, our expansion strategy includes opening new stores in markets where we already have a presence so we can take advantage of economies of scale in marketing, distribution and supervision costs.  However, these new stores may result in the loss of sales in existing stores in nearby areas.

The Company’s stock price may fluctuate based on market expectations.

The public trading of our stock is based in large part on market expectations that our business will continue to grow and that we will achieve certain levels of net income. If our quarterly financial performance does not meet the expectations of investors, our stock price would likely decline. The decrease in the stock price may be disproportionate to the shortfall in our financial performance.

The future sale of shares of the Company’s common stock and limited liquidity may negatively impact our stock price.

When the Company’s shareholders sell substantial amounts of our common stock, the market price of common stock could fall. A reduction in ownership by our controlling shareholders or any other large shareholders could cause the market price of our common stock to fall. Similarly, the market may disfavor the adoption of Rule 10b5-1 trading plans by one or more of the Company’s officers or directors, perceiving that such a plan represents a decline in management’s confidence about the Company’s prospects or that the parameters for and trading under a Rule 10b5-1 sales plan could cause downward pressure on the stock price.  In addition, the average daily trading volume in our stock is relatively low. The lack of trading activity in our stock may lead to greater fluctuations in our stock price. Low trading volume may also make it difficult for shareholders to make transactions in a timely fashion.

Technology failures and privacy and security breaches could adversely affect the Company’s business.

A significant part of the Company’s overall revenues derives from website sales. The success of our online business depends in part on factors over which we have limited control. These factors include changing customer preferences, changing buying trends related to Internet usage, changes in technology interfaces, temporary outages due to bandwidth constraints, another denial of service attack, computer viruses, and other malicious activity, hardware or network failures, other technology failures or human errors, security breaches and consumer privacy concerns. Any failure to respond successfully to these risks and uncertainties might adversely affect sales through our websites, impair our reputation and increase our operating costs.

If the Company’s information technology systems fail to perform as designed or if the Company needs to make system changes in order to support the growing direct and retail store businesses, there may be disruptions in operations.

The efficient operation of our business is dependent on our information technology systems and our point of sale, or POS, systems. Our information technology systems are located in Littleton, MA, and our POS systems are located in each retail store. These systems, which our employees use to process transactions, respond to customer inquiries, manage inventory, purchase, sell and ship goods on a timely basis, and maintain cost-effective operations, are subject to damage from natural disasters, power failures, hardware and software failures, security breaches, network failures, computer viruses and operator negligence. The failure of our information technology systems and our POS systems to perform as designed, even if temporary, could adversely affect inventory levels, shipments to customers and customer service. Any such event would have a material adverse effect on our operating results.

The Company may experience operational problems with its information systems as a result of system failures, viruses, computer “hackers” or other causes. Any material disruption or slowdown of our systems could cause information, including data related to customer orders, to be lost or delayed, which could hurt our business, financial condition and results of operations. Moreover, we may not be successful in developing or acquiring technology that is competitive and responsive to the needs of our customers and might lack sufficient resources to make the necessary investments in technology to compete with our competitors. Accordingly, if changes in technology cause our information systems to become obsolete, or if our information systems are inadequate to handle our anticipated growth, we could lose customers.

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While we believe that our systems are adequate to support our planned opening of additional retail stores over the next several years and the future growth of our direct sales business, we may need to upgrade and modify our information technology capabilities. Any upgrades to our information technology systems and our POS systems may not be successful or may cause substantial expenses. In addition, there are inherent risks associated with upgrading our core systems, including disruptions that affect our ability to deliver products to our customers. If we were unable to adequately handle these disruptions, it could adversely affect inventory levels, shipments to customers and customer service. Any such event would have a material adverse effect on our operating results.

The Company’s growth may strain operations, and finances, which could adversely affect our business and financial results.

The Company’s business has grown and continues to grow through organic growth and acquisitions.  Accordingly, sales, number of stores, number of states in which we conduct business, and number of associates have grown and will likely continue to grow.  This growth places significant demands on management and operational systems and may be limited by covenants and conditions in our loan agreements.  If we are not successful in continuing to support our operational and financial systems, expanding our management team and increasing and effectively managing our associate base, or managing our finances, this growth is likely to result in operational inefficiencies and ineffective management of the business and associates, or financial constraints or, in the worst case, loan default, any one or more of which may in turn adversely affect our business and financial performance.

The Company’s quarterly operating results are subject to significant fluctuation.

The Company experiences seasonal fluctuations in our revenues and operating results. We typically realize a higher portion of our revenues and operating results during the fourth quarter. As a result of this seasonality, we believe that quarter to quarter comparisons of our operating results are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance.  Our operating results have fluctuated from quarter to quarter in the past, and we expect that they will continue to do so in the future. Our earnings may not continue to grow at rates similar to the growth rates achieved in recent years and may fall short of either a prior fiscal period or investors’ expectations. Factors that could cause these quarterly fluctuations include the following: the extent to which sales in new stores result in the loss of sales in existing stores; our direct marketing, accrual or pre-opening store expenses in one or more new store locations, resulting in higher operating expenses without a corresponding increase in revenues; the transaction costs and goodwill associated with acquisitions; the impairment of such goodwill and the adverse effect on our profitability in the event that future performance does not occur as planned; the mix of products sold; pricing actions of competitors; the levels of and response rates and delays to;  advertising and promotional expenses; and seasonality, primarily because the sales and profitability of our stores are typically slightly lower in the first and third quarters of the fiscal year than in other quarters. Most of our operating expenses, such as rent expense, advertising expense and employee salaries, do not vary directly with the amount of sales and are difficult to adjust in the short term. As a result, if sales in a particular quarter are below expectations for that quarter, we may not proportionately reduce operating expenses for that quarter, and, therefore, this sales shortfall would have a disproportionately negative effect on our net income for the quarter.

If businesses we acquire do not perform as well as we expect or have liabilities that we are not aware of, we could suffer consequences that would substantially reduce our revenues, earnings and cash flows.

The Company’s business strategy includes growth of our retail sales channel, both through the development and opening of new Dover branded store sites and the acquisition and conversion of existing retail stores to the Dover brand.  Our financial performance may be adversely affected as the result of such acquisitions by such factors as: (1) difficulty in assimilating the acquired operations and employees; (2) inability to successfully integrate the acquired inventory and operations into our business and maintain uniform standards, controls, policies, and procedures; (3) lower-than-expected loyalty of the customer base of the acquired business to Dover branded stores and products; (4) post-acquisition variations in the product mix offered by the stores of the acquired business, resulting in lower revenues and gross margins; (5) declines in revenues of stores of the acquired business from historical levels and those projected, and (6) the occurrence of any one or more of such factors might lead to the impairment of any goodwill associated with an acquisition and have an adverse effect on our profitability.  Further, businesses we acquire may have unknown or contingent liabilities that are in excess of the amounts that we have estimated.  Although we have obtained indemnification, we may discover liabilities greater than the contractual limits or the financial resources of the indemnifying party. In the event that we are responsible for liabilities substantially in excess of any amounts recovered through rights to indemnification, we could suffer severe consequences that would substantially reduce our revenues, earnings and cash flows.

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Our shareholders may experience dilution in their ownership positions.

The Company has historically granted options to employees as a significant part of our overall compensation package.  As of December 31, 2013, our employees and non-employee directors held vested options in the aggregate to acquire 530,555 shares of common stock, all of which were exercisable at a weighted average sale and exercise price of $3.44 per share.  As previously reported, in February 2013 and August 2013, an employee and senior executive officer purchased for cash 700 and 10,576 shares of the Company’s common stock through exercise of an incentive stock option at $3.10 and $1.36 per share, respectively.  In addition, in November 2013 a senior executive officer purchased for cash 2,644 shares of the Company’s common stock through exercise of an incentive stock option at $1.24 per share. In November 2013 various employees and officers voluntarily forfeited options to purchase a total of 89,117 shares of the Company’s common stock that had an initial incentive stock option price of $7.50 and $10.00 per share.  To the extent that option holders exercise other vested outstanding options to purchase common stock, there may be further dilution. Future grants of stock-based compensation to employees may also result in dilution. We may raise additional funds through future sales of our common stock. Any such financing may result in additional dilution to our shareholders.

In addition to causing dilution, stock option grants increase compensation expense and may negatively impact our stock price.

The Company is required to take a current charge for compensation expense associated with our grant of stock options.  For the year ended December 31, 2013, we recognized $310,000 of non-cash, stock-based compensation expense. This charge has the effect of decreasing our net income and earnings per share, which may negatively impact our stock price.  To the extent the Company makes future grants of stock-based compensation to employees, this charge will increase.

If the Company cannot continue to successfully generate demand from the direct market channel, it would negatively impact growth and profitability.

Revenues from the Company’s direct market channel generated 53.6% of our revenues in 2013, and we expect such demand to continue to generate at least half of our revenues for at least the next few years. Our success depends on our ability to market, advertise and sell our products effectively through our various catalogs and Internet sites. We believe that the success of our direct market channel depends on:

·              favorable economic conditions;

·              our ability to offer a product mix that is attractive to our customers;

·              our ability to provide enough value to offset competitors free shipping offers;

·              the price points of our products relative to our competitors;

·              our ability to achieve adequate purchase response rates to our mailings;

·              our ability to add new customers in a cost-effective manner;

·              timely delivery of catalog mailings to our customers;

·              efficient interface for our Internet and mobile web sites;

·              a seamless buying experience for our customers across both of our channels; and

·              cost effective and efficient order fulfillment.

Catalog production, mailings and paper-based packing products, such as shipping cartons, entail substantial paper, postage, human resource and other costs, including costs of catalog development. We incur most of these costs prior to the mailing of each catalog. Increases in costs of mailing, paper or printing could increase our costs and adversely affect our earnings if we are unable to pass such cost increases on to our customers.  The success of our direct market channel hinges on the achievement of adequate response rates to mailings, merchandising, catalog and website presentations that appeal to our customers, and the expansion of our potential customer base in a cost-effective manner. Lack of consumer response to particular catalog mailings or Internet marketing efforts, search engine optimization, search engine marketing and comparison shopping engines may increase our costs and decrease the profitability of our business.

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The re-launch of the Company’s retail store rollout could cannibalize existing sales from the direct market channel or existing retail locations.

In response to the recent economic recession, the Company placed on hold in most of 2009 and in 2010 its plan to increase the number of retail stores.  In 2011 we began to re-launch the retail store rollout by opening two Dover-branded stores and an additional three Dover-branded stores in 2012. The store rollout continued in 2013 by opening four additional Dover-branded stores; Huntington, NY in Q2, Winter Park, FL, Austin, TX and Charlotte, NC in Q4. We are planning on between five and seven new store locations that can be opened in 2014.  However, our strategy to increase the number of retail store locations is based on finding optimal locations where demand for equestrian products is high. When we open a retail store in an area that has a high concentration of our existing customers, we expect that such customers will purchase products in the retail location as well as through our catalogs and websites, ultimately increasing their total purchases as omni-channel customers. Demand from our direct market channel in the geographic area surrounding our Hockessin, DE store declined 4% in the first year of such store’s operation. In the future, in areas where we open retail stores, the customers located within the area of such store may not spend more than they would have from the catalog and websites and, therefore, there may be a shift in demand from our direct market channel to our retail market channel. In such case, we may incur significant costs associated with opening a store, shipping product to that store and mailing catalogs while not generating incremental revenue.

As the Company re-launches its retail store expansion plan, quarterly revenues and earnings could be variable and unpredictable and inventory levels will increase.

Over the next several years, as the economy continues to recover, we plan to continue our retail store expansion strategy. As we open new stores, (i) revenues may fluctuate, and (ii) pre-opening expenses will be incurred which may not be offset by a corresponding increase in revenues during the same financial reporting period. These factors may contribute to variable operating results.

Some of the expenses associated with openings of our new retail stores, such as labor incurred from increased headcount and store occupancy, will increase. Additionally, as we increase inventory levels to provide stores with merchandise, we may not be able to manage this inventory without incurring additional costs.  If retail store sales are inadequate to support these new costs, our earnings will decrease.

The Company relies on service providers to operate our business and any disruption of space or substantial increases in the costs of their supply of services could have an adverse impact on our revenues and profitability.

The Company relies on a number of service providers to operate our business such as:

·              a printer and a database processor to produce and mail our catalogs;

·              a website hosting service provider to host and manage our websites, a search engine marketing consultant and an email service provider to send out customer emails;

·              telephone data companies to provide telephone, Internet and fax service to our customer service centers and to communicate between locations; and

·              shipping companies such as FedEx, the U.S. Postal Service, UPS, and common carriers for timely delivery of our catalogs and merchandise to our customers, merchandise from our suppliers, including foreign suppliers, to us and merchandise from our warehouse to our retail stores.

Any disruption in these services, or substantial cost increases in these services, may have a negative impact on our ability to market and sell our products and serve our customers and could result in increased costs to us.

The Company relies on merchandise suppliers to operate our business and any disruption of their supply of products could have an adverse impact on our revenues and profitability.

The Company relies on merchandise suppliers to supply our products in saleable condition, in sufficient quantities, at competitive prices and in a timely manner. We also rely on them to extend favorable sales terms for the purchase of their products and quality. In 2013, our single largest merchandise supplier accounted for significantly less than 10% of our sales. Our current merchandise suppliers may not be able to accommodate our anticipated product or credit needs in a timely manner or at all.  If we are unable to acquire suitable merchandise in a timely manner, obtain favorable credit terms, or lose one or

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more key merchandise suppliers, we may not be able to offer products that are important to our merchandise assortment, which would have a material adverse effect on our business. While we believe our merchandise supplier relationships are satisfactory, we have no contractual arrangements providing for continued supply or credit terms from our key merchandise suppliers and our merchandise suppliers may discontinue selling to us at any time or may raise the cost of merchandise, and we may be unable to pass such price increases along to our customers.

If the Company does not properly manage our inventory levels, our operating results and available funds for future growth will be adversely affected.

The Company currently maintains a high level of inventory and a broad depth of products for our customers. The investment associated with this high level of inventory is substantial. If we fail to adequately predict the quantity or mix of our inventory, we will incur costs associated with stocking inventory that is not being sold or fails to meet the demands of our customers or we may be required to write off or write down inventory which would lower our operating results. If we do not meet the needs of our customers, they may purchase products from our competitors. Although we have some ability to return merchandise to our suppliers, we incur additional costs in doing so, and we may not be able to return merchandise in the future.

A natural disaster or other disruptions at our Littleton, MA warehouse fulfillment center could cause the Company to lose merchandise and prevent delivery of products to our direct sales customers and our retail stores.

The Company currently relies on the Littleton, MA warehouse to fulfill orders shipped to customers and restocking store inventories. Any natural disaster or other serious disruption to this warehouse due to fire, flood, tornado, earthquake or any other calamity could damage a significant portion of our inventory and materially impair our ability to adequately stock our retail stores, deliver merchandise to customers, and process returns to merchandise suppliers. A disruption of this type could result in lost revenues and increased costs.

If the Company loses key members of management or is unable to retain qualified staff required to operate our business, our operating results could suffer.

The Company’s future success depends to a significant degree on the skills, experience and efforts of Stephen Day, our president and chief executive officer, Jonathan Grylls, our chief strategic officer, William Schmidt, our chief operating officer, James Cullen, our executive vice president, David Pearce, our chief financial officer and other key personnel including our senior executive management. We currently maintain two million dollars of key-man life insurance on Mr. Day, the proceeds of which are required to pay down outstanding debt. We have employment agreements with Mr. Day, Mr. Schmidt, Mr. Cullen, Mr. Pearce and Mr. Grylls, which contain provisions for non-competition, non-solicitation and severance. In addition, our future success depends upon our ability to attract and retain highly-skilled and motivated, full-time and temporary sales personnel with appropriate equestrian products industry knowledge and retail experience to work in management and in our retail stores. The loss of the services of any one of our executives or the inability to attract and retain qualified individuals for our key management and retail sales positions may have a material adverse effect on our operating results.

The Company may need additional financing to execute our growth strategy, which may not be available on favorable terms or at all.  The inability to raise financing could increase our costs, limit our ability to grow and dilute the ownership interests of existing shareholders.

As of March 29, 2013, the Company amended its current revolving credit facility.  The amended credit facility is due in full on March 29, 2015 and its borrowing limit may be increased to $20,000,000 from $13,000,000 at the sole discretion of the bank, both of which conditions may limit our ability to finance the opening of all of our planned additional stores over the next several years. In order to satisfy our revolving credit facility when due and to execute our retail store expansion strategy, we may need to borrow additional funds, raise additional equity financing or finance our planned expansion from profits, but such borrowings or new financings might be limited by the covenants and other terms in other loan agreements. We may also need to raise additional capital in the future to respond to competitive pressures or unanticipated financial requirements. We may not be able to obtain additional financing, including the extension or refinancing of our revolving credit facility, on commercially reasonable terms or at all. A failure to obtain additional financing or an inability to obtain financing on acceptable terms could require us to incur indebtedness at high rates of interest or with substantial restrictive covenants, including prohibitions on payment of dividends.

The Company may obtain additional financing by issuing equity securities that will dilute the ownership interests of existing shareholders. If we are unable to obtain additional financing, we may be forced to scale back operations or be unable to address opportunities for expansion or enhancement of our operations.

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The Company relies on foreign sources for many of our products, which subjects us to various risks.

The Company currently direct sources approximately 16% of our products from foreign manufacturers located in Europe, Asia and South America and buys a majority of its products from distributors and manufacturers that also source products from foreign manufacturers. As such, we are subject to risks and uncertainties associated with changing economic and political conditions in foreign countries. These risks and uncertainties include currency rate fluctuations, manufacturing quality control risks, import duties and quotas, work stoppages, economic uncertainties including inflation, foreign government regulations, wars and fears of war, acts of terrorism and fear of acts of terrorism, political unrest and trade restrictions. Additionally, countries in which our products are currently manufactured or may be manufactured may become subject to trade restrictions imposed by the U.S. or foreign governments. Any event affecting prices or causing a disruption or delay of imports from foreign merchandise suppliers, including the imposition of additional import restrictions, currency rate fluctuations, restrictions on the transfer of funds or increased tariffs or quotas, or both, could increase the cost or reduce the supply of merchandise available to us and adversely affect our operating results.

The Company does not currently, and does not plan to, hedge against increases or decreases in the value of the U.S. dollar against any foreign currencies. Our product sourcing from foreign merchandise suppliers means, in part, that we may be affected by declines in the value of the U.S. dollar relative to other foreign currencies. Specifically, as the value of the U.S. dollar declines relative to other currencies, our effective cost of products increases. As a result, declines in the value of the U.S. dollar relative to foreign currencies would adversely affect our operating results.

As the Company continues its retail store expansion strategy, it may result in state governments asserting that the direct market channel has established state tax nexus with that state, which may cause our business to pay additional income and sales tax and have an adverse effect on the demand and related cash flows from our direct market channel.

As the Company continues its retail store expansion strategy and opens retail stores in additional states, the necessary relationship between the retail stores and the direct market channel may be deemed by certain state tax authorities to create a nexus for state income and sales taxation of our business in those states. This could result in an increase in the tax collection and payment obligations of our business, which would have an adverse effect on the sales demand and related cash flows from our direct market channel and our overall business. Such sales tax collection obligations, if any, would increase the total cost of our products to our customers. This increased cost to our customers could negatively affect the revenues of our direct market channel if we are required to reduce the underlying prices to maintain unit sales volumes for the products marketed through our direct market channel. The occurrence of either of these events would have an adverse effect on demand and related net cash flows from our direct market channel. This area of law is uncertain and changing, and we could be subject to paying back taxes and penalties.

If the Company fails to adequately protect our trademarks, our brand and reputation could be impaired or diluted, and we could lose customers.

The Company has, or has rights to, three trademarks that are considered to be material to the successful operation of our business.  These trademarks are: Dover Saddlery, Smith Brothers, and The Source. We currently use all of these marks in our direct channel business. We also have several additional pending trademark applications. We regard our copyrights, service marks, trade dress, trade secrets and similar intellectual property as critical to our success. In addition to our registered marks and pending applications, our principal intellectual property rights include copyrights in our catalogs, rights to our domain names and our databases and information management systems. As such, we rely on trademark and copyright law, trade secret protection and confidentiality agreements to protect our proprietary rights. Nevertheless, the steps we take to protect our proprietary rights may be inadequate. Our trademark applications may not be granted, and we may not be able to secure significant protection for our marks. Our competitors or others may adopt trademarks or service marks similar to our marks or try to prevent us from using our marks, thereby impeding our ability to build brand identity and possibly leading to customer confusion. In addition, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. Therefore, we may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights. If we are unable to protect or preserve the value of our trademarks, copyrights, trade secrets or other proprietary rights for any reason, our brand and reputation could be impaired or diluted, and we may lose customers.

The Company may have disputes with, or be sued by, third parties for infringement or misappropriation of their proprietary rights, which could have a negative impact on our business.

Other parties may assert claims with respect to patent, trademark, copyright or other intellectual property rights that are important to our business, such as our Dover Saddlery, Smith Brothers and The Source trademarks. Other parties might seek to

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block the use of, or seek monetary damages or other remedies for the prior use of, our intellectual property or the sale of our products as a violation of their trademark, patent or other proprietary rights. Defending any claims, even claims without merit, could be time-consuming, result in costly settlements, litigation or restrictions on our business and could damage our reputation.

In addition, there may be prior registrations or use of intellectual property in the U.S. or foreign countries (including, but not limited to, similar or competing marks or other proprietary rights) of which we are not aware. In all such countries, it may be possible for any third-party owner of a trademark registration in that country or other proprietary right to enjoin or limit our expansion into those countries or to seek damages for our use of such intellectual property in such countries. In the event a claim against us was successful and we could not obtain a license to the relevant intellectual property or redesign or rename our products or operations to avoid infringement, our business, financial condition or results of operations could be harmed. In addition, securing registrations does not fully insulate us against intellectual property claims, as another party may have rights superior to our registration or our registration may be vulnerable to attack on various other grounds.

Any such claims of infringement or misappropriation, whether meritorious or not, could:

·              be expensive and time consuming to defend;

·              prevent us from operating our business, or portions of our business;

·              cause us to cease selling certain products;

·              result in the loss of customers;

·              require us to re-label or re-design certain products, if feasible;

·              result in significant monetary liability;

·              divert management’s attention and resources;

·              potentially require us to enter into royalty or licensing agreements in order to obtain the right to use necessary intellectual property; and

·              force us to stop using valuable trademarks under which we market our products.

Third parties might assert infringement claims against us in the future with respect to any of our products. Any such assertion might require us to enter into royalty arrangements or litigation that could be costly to us. Any of these events could have a material adverse effect on our business.

The Company is subject to numerous regulations and regulatory changes that could impact the business or require us to modify our current business practices.

The Company is subject to numerous regulations governing the Internet and e-commerce, retailers generally, the importation, promotion and sale of merchandise, and the operation of retail stores and warehouse facilities. These regulations include customs, privacy, truth-in-advertising, consumer protection, shipping and zoning and occupancy laws and ordinances. Many of these laws and regulations may specifically impede the growth of the Internet or other online services. If these laws were to change, or are violated by our management, employees, suppliers, buying agents or trading companies, we could experience delays in shipments of our goods or be subject to fines or other penalties which could hurt our business, financial condition and results of operations.

The growth and demand for online commerce has resulted, and may continue to result, in more stringent consumer compliance burdens on companies that operate in the e-commerce segment. Specifically, certain states have enacted various legislation with respect to consumer privacy.  In addition, the Federal Trade Commission and certain state agencies have been investigating various Internet companies regarding their use of personal information. The costs of compliance with federal and state privacy laws and the costs that might be incurred in connection with any federal or state investigations could have a material adverse affect on our business and operating results. Our direct market channel procedures are subject to regulation by the U.S. Postal Service, the Federal Trade Commission and various state, local and private consumer protection and other regulatory authorities. In general, these regulations govern the manner in which orders may be solicited, the form and content of advertisements, information which must be provided to prospective customers, the time within which orders must be filled,

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obligations to customers if orders are not shipped within a specified period of time and the time within which refunds must be paid if the ordered merchandise is unavailable or returned. From time to time, we have modified our methods of doing business and our marketing procedures in response to such regulation. To date, such regulation has not had a material adverse effect on our business or operating results. However, future regulatory requirements or actions may have a material adverse effect on our business or operating results.

Legal requirements are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations. We may be required to make significant expenditures or modify our business practices to comply with laws and regulations. Compliance with existing or future laws and regulations may materially limit our ability to operate our business and increase our costs.

The Company’s 100% satisfaction guarantee exposes us to the risk of an increase in our return rates which could adversely affect our profitability.

Part of the Company’s marketing and advertising strategy focuses on allowing customers to return products ordered from our catalogs or retail stores at any time if they are not satisfied and obtain a refund of the purchase price. As we expand our sales, our return rates may not remain within our historically low levels and could significantly impair our profitability.

The Company’s marketing expenditures may not result in increased sales or generate the levels of product and brand name awareness we desire, and we may not be able to manage our marketing expenditures on a cost-effective basis.

A significant component of the Company’s marketing strategy involves the use of direct marketing to generate sales, from both our direct and retail market channels. Future growth and profitability will depend in part on the effectiveness and efficiency of our marketing expenditures, including our ability to:

·              create greater awareness of our products and brand name;

·              determine the appropriate creative message and media mix for future marketing expenditures;

·              effectively manage marketing costs, including creative and media, to maintain acceptable costs per inquiry, costs per order and operating margins; and grow revenue when the economy rebounds; and

·              convert inquiries into actual orders.

Our marketing expenditures may not result in increased sales or generate sufficient levels of product and brand name awareness and we may not be able to maintain market share in the short run or manage such marketing expenditures on a cost effective basis.

Item 1B.  Unresolved Staff Comments.

None.

Item 2.  Properties.

The Company currently leases an approximately 100,000 square foot facility in Littleton, MA for the corporate headquarters, main call center, warehouse, and fulfillment center.  The Company uses approximately 92,000 square feet for warehouse space and the remaining space is used as office space. The Littleton lease was amended October 1, 2010 and expires September 30, 2020.  We have one five-year option to renew thereafter.

The Company leases approximately 2,200 square feet of space in North Conway, NH for use as a satellite call center and for our creative design offices. We lease approximately 5,100 square feet of space in Denton, TX for use as a satellite call center and additional offices.

As of December 31, 2013, the Company leased approximately 172,000 square feet of space for our twenty-two retail stores located in Massachusetts (1), Virginia (3), New Hampshire (1), Maryland (2), Delaware (1), Texas (3), New Jersey (1), Georgia (1), Colorado (1), Illinois (1), Pennsylvania (1), Minnesota (1), North Carolina (2) Rhode Island (1), New York (1) and Florida (1).

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Item 3.  Legal Proceedings.

From time to time, the Company is exposed to litigation relating to our products and operations.  The Company is not currently engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material, adverse affect on our financial condition or results of operations.

Item 4.  Mine Safety Disclosures.

Not applicable.

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information.

The Company’s common stock trades on The NASDAQ Stock Market LLC under the symbol “DOVR”.  As of March 10, 2014, the record date for our 2014 Annual Meeting of Stockholders, the number of holders of record of our common stock was 25 and the approximate number of beneficial owners was 1,113.

The following table sets forth, for the periods indicated, the high and low sales prices for our common stock for each full quarterly period within the two most recent fiscal years, as reported on the NASDAQ Stock Market LLC:

The Company has never declared or paid any cash dividends on our common stock. We currently intend to retain any earnings for use in the operation and expansion of our business and, therefore, do not anticipate paying any cash dividends in the foreseeable future. Moreover, our current revolving credit facility, cap ex term loan and term note contains provisions which restrict our ability to pay dividends.

The information required to be disclosed by Item 201(d) of Regulation S-K, “Securities Authorized for Issuance Under Equity Compensation Plans,” is included under Item 12 of Part III of this Annual Report on Form 10-K.

Recent Sales of Unregistered Securities; Uses of Proceeds from Registered Securities.

The Company did not issue or sell any equity securities in the twelve months ended December 31, 2013, other than (as previously reported) as the result of exercise in February, August and November 2013 of certain vested stock options to purchase a total of 13,920 shares of our common stock, resulting in $2,170, $14,383 and $3,596, respectively, of proceeds, which the Company applied in full for general working capital purposes during the respective three month periods ended March 31, 2013, September 30, 2013 and December 31, 2013. In the fourth quarter of 2013, options to purchase 89,117 shares of the Company’s common stock were voluntarily surrendered by holders of those options.  The Company continues to reserve those shares to cover the possible exercise of prior option awards and of potential future option awards.

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For history of the Company’s debt and equity financing activity prior to January 1, 2013, see Part II, Items 5 and 9B of the Company’s amended Annual Report on Form 10-K/A for the fiscal year ending December 31, 2012, as filed with the SEC on June 5, 2013.

Issuer Purchases of Equity Securities

During the fiscal year ended December 31, 2013, there were no repurchases made by us or on our behalf, or by any “affiliated purchasers” of shares of our common stock.

Item 6.  Selected Financial Data

Not Applicable to Smaller Reporting Company.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Annual Report on Form 10-K, including the following discussion, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve substantial risks and uncertainties. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, the words “projected”, “anticipated”, “planned”, “expected”, and similar expressions are intended to identify forward-looking statements. In particular, statements regarding future financial targets and trends, retail store expansion and business growth are forward-looking statements. Forward-looking statements are not guarantees of our future financial performance, and undue reliance should not be placed on them; our actual results, performance or achievements may differ significantly from the results, performance and achievements discussed in or implied by the forward-looking statements. Factors that could cause such a difference include material changes to Dover Saddlery, Inc.’s business or prospects, in consumer spending, fashion trends or consumer preferences, or in general political, economic, business or capital market conditions and other risks and uncertainties, including but not limited to the other factors that are detailed in “Item 1A. Risk Factors.” We disclaim any intent or obligation to update any forward-looking statements.

Overview

The Company is the leading, specialty retailer and the largest omni-channel marketer of equestrian products in the U.S.  For over 37 years, Dover Saddlery has been a premier upscale marketing brand in the English-style riding industry.  We sell our products through an omni-channel strategy.  This omni-channel strategy has allowed us to use catalogs and our proprietary database of over two million names of equestrian enthusiasts as a primary marketing tool to increase catalog sales and to drive additional business to our e-commerce websites and retail stores.

In November of 2005, Dover Saddlery was taken public using the Open IPO ® process.  The proceeds of that offering were used to retire debt and launch our retail rollout.

The Company’s strategy for growth has been to open additional retail stores using the proprietary, mathematical, store optimization model to select the sites.  Our initial target of opening 50 retail locations in addition to the 3 stores operating at the IPO, is now 38% complete, with 19 new locations since our IPO.  For 2014 through 2018, the Company estimates that it could open on average four stores annually from cash flow and borrowing under its line of credit from its bank and may proceed under that plan if and as the economy improves.  In order to open more than four stores per year, the Company may need to raise additional debt and/or equity capital (See Explanation of Strategic Initiatives in this Item 7 below).  Depending on the store size in terms of area, the local lease and construction rates which vary widely across the country, the Company estimates that it would need to invest between $600,000 to $1,200,000 to pay for fixtures, equipment, leasehold improvements, inventory and pre-opening expenses for each store opened.  The Company makes no representation that it will open any new stores in the next few years or what each store shall cost to open.

The recovery in 2010, 2011, 2012 and 2013 from the recession that ended in 2009 has been uneven and slow and created a difficult operating environment for our industry as a result of numerous external factors that led to all time historical lows in consumer confidence which resulted in a contraction in specialty retail consumer spending.

In 2013, our prior investment in our retail expansion and the opening of four additional retail stores generated a 17.7% increase in retail market channel revenues, along with an increase of 2.0% in the direct channel revenues, resulting in $93.8 million in total revenues.  Although overall sales increased 8.7% over 2012, increased cost of goods sold, expenses in marketing and salaries and the cumulative gift card breakage income in 2012 of $441,362, the Company generated an

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Adjusted EBITDA* of $5.0 million, a slight increase of 1.7% over the 2012 results. The resulting net income was $1,590,825 or $0.29 per diluted share.  The Company utilized the resulting operating cash flow to fund inventory growth, strengthen our balance sheet and open four additional retail stores, which strengthens the Company’s strategic position for further growth as the retail economy improves.

The Company believes that the following strategic actions, initiated in 2009, allowed us to successfully weather the recent recession and slow recovery and generate positive growth in sales and earnings as consumer confidence improved and the economy turned around.  These are:

·                  Cost control particularly in the area of targeted marketing, direct labor in the warehouse, call center and retail stores, and management salaries.

·                  Reduction in capital expenditures by curtailing store expansion and being extremely opportunistic in present and future lease negotiations.

·                  Careful monitoring of same store sales growth and direct marketing response rates in order to determine when the Company’s customers have returned to normal spending behavior, which will allow Dover to increase its marketing activities.

·                  Slowly re-launching our retail store expansion strategy by opening two stores in 2011 and three stores in 2012.

·                  Continue the retail store expansion by opening four stores in 2013.

In this time of economic uncertainty, it is very difficult to accurately predict economic trends; however, improving economic indicators such as falling unemployment rates and expanding GDP and increased buying from our customer base, gives us the confidence to continue the store expansion strategy in 2014.

* We reference Adjusted EBITDA in this Overview because we consider it an important supplemental measure of our performance; indeed, the Company ties its executive and employee bonus pools directly to this measure.  Also, we believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Its definition and limitations are set forth in this section under “Results of Operations”, Management’s Discussion and of Analysis and Financial Condition and Results of Operations, of Item 7 of this Annual Report on Form 10-K.

Consolidated Performance and Trends

The Company reported consolidated net income for the year ended December 31, 2013 of $1,591,000 or $0.29 per diluted share.  This is compared to net income of $1,716,000 or $0.31 per diluted share for the corresponding period in 2012.

The 2013 results reflect our continuing efforts to execute our growth strategy in the retail market channel where revenues increased 17.7% to $43.5 million for the year.  This trend of increased revenue in the retail market channel may be slowed or eroded by delays in the execution of our new store expansion strategy, constraints in available capital, and interim declines in consumer demand at our retail stores impacted by lingering effects of the recent global financial and credit crisis.  The Company responds to fluctuations in revenues primarily by delaying the opening of new stores, adjusting marketing efforts and operations to support our retail stores and managing costs.  The success of our new store growth plan is dependent upon the response of our customers to these marketing strategies and evolving market conditions.  Our direct market channel revenues increased 2.0%, to $50.3 million for the year ended 2013, due to improved consumer spending and promotions.  We anticipate and respond to fluctuations in our direct customers’ response by adjusting the quantities of catalogs mailed and other Internet marketing and customer-related strategies and tactics in order to maximize revenues and manage costs.

Exploration of Strategic Initiatives

The Company’s board and senior management are committed to manage and grow the Company in the best interests of its stockholders, including the growth in the long-term value of their holdings of Company stock. Senior management believes, and the board agrees, that it would be in the best interests of the Company’s stockholders to explore options that may accelerate the realization of value for the benefit of its stockholders; and while alternatives are reviewed, senior management should remain focused on executing on the Company’s operational plan to realize the long-term value of its assets.

Therefore, on September 23, 2013, the Company announced that its board of directors and senior management have initiated a process to identify and consider a range of operational, financial and strategic alternatives to better pursue its growth strategy and that may accelerate the enhancement of value for the benefit of its stockholders. During this process, the Company plans to evaluate all of its current and projected risks, opportunities and strategic alternatives.

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At the direction of the board, the Company has engaged Duff & Phelps Securities, LLC as its exclusive financial advisor in connection with the review process. While the board has previously received unsolicited expressions of interest in relation to various potential strategic transactions from time to time, it is not currently in discussions with any particular party.

While undertaking this process, the board and senior management will remain highly focused on executing the Company’s long-term operational plan, which includes among other initiatives the continued rollout of its retail store expansion plan and the integration and realization of the strategic and financial benefits of the new retail stores opened over the past several years.

The Company stated that there can be no assurance that the board’s exploration of strategic alternatives will result in any transaction being pursued, entered into or consummated, and there is no set timetable for the strategic review process. The Company does not intend to comment further regarding the evaluation of strategic alternatives until such time as the board has determined the outcome of the process or otherwise has deemed that disclosure is appropriate.

Revenues

The Company markets and sells the most comprehensive selection of products in the equestrian industry. We currently derive our revenues from product sales from two integrated market channels: direct and retail. Our direct market channel generates product sales from both catalog mailings and Internet marketing, and our retail store sales consist of product sales generated by our retail market channel. We sell to the English-style riding market through our Dover Saddlery brand and to the Western-style riding market through our Smith Brothers brand.

In 2013, approximately 53.6% of our revenues were generated by our direct market channel and 46.4% were generated by our twenty-two retail stores, which increased from the 42.8% of retail sales in 2012, due primarily from gains achieved from strong sales growth from our newer stores as they mature, four additional retail stores and promotions.  All revenues are recorded net of estimated product returns.   In addition, beginning in the first quarter of 2012, the Company began to recognize revenue from the breakage of gift cards when the likelihood of redemption of the gift card is remote and there is no legal obligation for the Company to remit the value of such unredeemed gift cards to any relevant jurisdiction.  Revenue was recognized in both retail and direct market channels based on where the gift card was issued.

Revenues from our product sales are seasonal. In addition, our revenues can be affected by the timing of our catalog mailings. In 2013, 32.3% of our annual revenues were generated in the fourth quarter.

Cost of Revenues

The most significant components of the Company’s cost of revenues are product, purchasing, handling and transportation costs to obtain the products and ship them to our customers and stores. We manage our integrated merchandising efforts by forming positive relationships with over 500 suppliers to ensure competitive costs and the most up-to-date and complete product offering for our customers. We have implemented procedures to promote labor efficiencies in the handling of our products. In addition, we work closely with transportation companies in negotiating competitive rate structures to minimize our freight costs.

Gross Profit

The Company’s gross profit as a percentage of revenues varies according to the season of the year and the mix of products sold. Our gross profit may not be comparable to other specialty retailers, as some companies include all of the costs related to distribution in cost of revenues while others, like us, exclude all or a portion of the costs related to distribution from cost of revenues and include them in selling, general and administrative expenses.

Selling, General and Administrative Expenses

The Company’s selling, general and administrative expenses consist primarily of:

•             advertising, marketing and other brand-building costs, primarily associated with developing, printing and distributing our catalogs and purchasing internet advertising;

•             labor and related costs for order processing, and salaries and related costs for marketing, creative, administrative and executive personnel;

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•             infrastructure costs, insurance, utilities and information system costs;

•             credit card processing fees;

•             occupancy and other overhead costs;

•             store pre-opening costs;

•             public company, professional fees and other legal, accounting and related costs; and

•             non-cash, stock-based compensation, depreciation and amortization.

As the long-term strategy will continue to focus on increasing our market penetration and continuing to build brand awareness, we anticipate that selling, general and administrative expenses will continue to increase in absolute dollars for the foreseeable future. Total selling, general and administrative costs as a percentage of our revenues are not likely to decrease in the foreseeable future as we intend to continue to take advantage of our market-leading position in the equestrian industry by building on the Dover Saddlery and Smith Brothers brands. We also expect our general and administrative expenses will remain high due to our operations as a public company.

Fiscal Periods

Our fiscal year ends on December 31, and our fiscal quarters end on March 31, June 30, September 30 and December 31.

Results of Operations

The following table sets forth results of operations for the periods shown (dollars in thousands):

(1)                                 Includes twenty-one Dover-branded stores and one Smith Brothers store.  The Huntington, NY Dover-branded store opened in Q2 of 2013, Winter Park, FL, Austin, TX and Charlotte, NC stores opened in Q4 of 2013.

(2)                                 When we use the term “Adjusted EBITDA”, we are referring to net income minus interest income and other income plus interest expense, income taxes, non-cash stock-based compensation, depreciation, amortization and other investment (income) loss, net. We present Adjusted EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.

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Adjusted EBITDA has some limitations as an analytical tool and you should not consider it in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities or any other measure calculated in accordance with U.S. generally accepted accounting principles. Some of the limitations are:

•             Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or capital commitments;

•             Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

•             Adjusted EBITDA does not reflect the impact of an impairment charge that might be taken, when future results are not achieved as planned, in respect of goodwill resulting from any premium that the Company might pay in the future in connection with potential acquisitions;

•             Adjusted EBITDA does not reflect the interest expense or cash requirements necessary to service interest or principal payments on our debt;

•             Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

•             Although stock-based compensation is a non-cash charge, stock options previously awarded, together with additional stock options that might be granted in the future, might have a future dilutive effect on earnings and EPS;

•             Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

The following table reconciles net income to Adjusted EBITDA and Adjusted EBITDA without the cumulative impact of gift card breakage income (in thousands):

(*)                                 Includes breakage income for the year ended December 31, 2013 of $120,584.  For the same period in 2012 net income includes the cumulative impact of the change in gift card breakage income of $441,362 recorded in the first quarter of 2012 and breakage income for year ended December 31, 2012 of $166,528.

The following table reconciles operating income to Adjusted Operating Income without the cumulative impact of gift card breakage income (in thousands):

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The following table sets forth our results of operations as a percentage of revenues for the periods shown (1):

(1) Some of these amounts may not sum properly due to rounding.

Comparison of Years Ended December 31, 2013 and 2012

Revenues

Total revenues increased $7.5 million, or 8.7%, to $93.8 million for the year ended December 31, 2013 from $86.3 million for the year ended December 31, 2012. Revenues in our direct market channel increased $0.9 million, or 2.0%, to $50.3 million from $49.4 million in the corresponding period in 2012. Revenues in our retail market channel increased $6.5 million, or 17.7%, to $43.5 million from $37.0 million in 2012.  The increase in our direct market channel was due to improved consumer spending and promotions.  The increase in revenues from our retail market channel was due to strong sales growth from our newer stores as they mature, four additional retail stores and promotions.  Same store sales for the twelve month period increased 3.7% over the prior year.  In addition, gift card breakage income of $120,584 was recognized during the twelve months ending December 31, 2013, compared to gift card breakage income of $607,892, including the cumulative impact of $441,362 that was recognized during the year ending December 31, 2012.  The revenue was recognized in both retail and direct market channels based on where the gift card was issued.

Gross Profit

Gross profit for the year ended December 31, 2013 increased $3.7 million, or 11.3%, to $36.7 million from $33.0 million for the corresponding period in 2012. Gross profit, as a percentage of revenues, for the year ended December 31, 2013 increased 0.9% to 39.1% from 38.2% for the corresponding period in 2012. The increase in gross profit of $3.7 million was attributable to increased revenue in both channels.  The increase in gross profit as a percentage of revenues was attributable to variations in overall product mix.

Selling, General and Administrative

Selling, general and administrative expenses increased $4.0 million, or 13.7%, for the year ended December 31, 2013 to $33.3 million from $29.3 million for the corresponding period in 2012.  Increased lease expense of $365,000, professional fees of $267,000, depreciation expense of $251,000, supplies of $170,000, travel of $152,000 and labor costs of $1,815,000 were the primary causes for this increase in SG&A expenses.  SG&A expenses, as a percentage of revenues, increased to 35.4% of revenues from 33.9% of revenues for the corresponding period in 2012 due to increased depreciation expense, lease expense, professional fees, supplies, travel, and labor costs.  Labor, supplies, travel, depreciation and lease expense increased primarily due to the additional number of stores as compared to last year.  Professional costs largely reflect our ongoing investments to improve our Internet channel.

Interest Expense

Interest expense, including amortization of financing costs, attributed primarily to our Capex term loans, term note and revolving credit facility increased $38,000 or 7.0% to $576,000 for the year ended December 31, 2013 from $538,000 for the same period in 2012.

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Other Investment Loss

Net loss from investment activities consists of the Company’s share of net earnings or loss of its affiliate as they occur.  The Company’s net investment loss for the year ended December 31, 2013 was $13,000, a decrease of $26,000 over its net investment loss of $39,000 in 2012.  The Company’s investment loss from investment activities are related to our investments in Hobby Horse Clothing Company, Inc. (“HH”) and Horsepharm.com, LLC (“HP”), prior to September 27, 2013 when it began consolidating.

Income Tax Provision

The provision for income taxes was $1,284,000 for the year ended December 31, 2013, reflecting an effective tax rate of 45%, compared to $1,444,000 for the corresponding period in 2012, reflecting an effective tax rate of 46%.  The effective tax rate in 2013 increased due primarily to an earnings mix by state and the impact of certain permanent tax items.

Net Income

The net income for the year ended December 31, 2013 decreased $125,000 or 7.3%, to $1,591,000 from $1,716,000 for the corresponding period in 2012. This decrease in profitability of $125,000 (which is net of the after-tax gift card breakage revenue recognized for the period) is due to increased SG&A expenses related to lease expense, professional fees, depreciation expense, supplies, travel and labor costs.  The resulting income per diluted share decreased to $0.29 for the year ended December 31, 2013 as compared to $0.31 for the corresponding period in 2012.

Non-GAAP Financial Measures and Information

From time to time, in addition to financial results determined in accordance with generally accepted accounting principles in the United States (“GAAP”), the Company provides financial information determined by methods other than in accordance with GAAP. The Company’s management uses these non-GAAP measures in its analysis of the Company’s performance and ongoing operations.  For example, the Board of Directors has a long-standing policy to use Adjusted EBITDA (defined in “Results of Operations” of Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Item 7 of our Annual Report on Form 10-K) in determining the availability and amounts of bonus awards for the Company’s senior management and key employees.  The Company believes that these non-GAAP operating measures supplement our GAAP financial information and provide useful information to investors for evaluating the Company’s operating results, and trends that may be affecting the Company’s business, as they allow investors to more readily compare our operations to prior financial results, and our future performance. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Seasonality and Quarterly Fluctuations

Since 2001, our quarterly product sales have ranged from a low of approximately 20% to a high of approximately 32% of any calendar year’s results. The beginning of the spring outdoor riding season in the northern half of the country has typically generated a slightly stronger second quarter of the year, and the holiday buying season has generated additional demand for our normal equestrian product lines in the fourth quarter of the year. Revenues for the first and third quarters of the calendar year have tended to be somewhat lower than the second and fourth quarters. We anticipate that our revenues will continue to vary somewhat by season.  The timing of our new retail store openings has had, and is expected to continue to have, a significant impact on our quarterly results. We will incur one-time expenses related to the opening of each new store. As we open new stores, (i) revenues may spike and then settle, and (ii) pre-opening expenses, including occupancy and management overhead, are incurred, which may not be offset by correlating revenues during the same financial reporting period. As a result of these factors, new retail store openings may result in temporary declines in operating profit, both in dollars and as a percentage of sales.

Liquidity and Capital Resources

For the year ended December 31, 2013, our cash increased by $20,000.  Cash was utilized primarily for seasonal working capital requirements and fitting up new stores. The source for cash generated related to increased balances in our Capex Term Loans, increased balances in depreciation and amortization, accounts payable, accrued expenses and net income. On March 29, 2013, the Company and the bank amended the Revolver Facility so that the Company can borrow three Capex Term Loans for capital expenditures used to open new stores.  Under the amended Revolver Facility, the Company can borrow up to $13,000,000, of which up to $1,000,000 can be in the form of letters of credit and up to $8,000,000 can be advanced as Capex

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Term Loans, and increase the $13,000,000 maximum up to $20,000,000 at the discretion of the bank. The amendment allows for additional borrowings for store openings the Company amended the covenants under the Credit Facility to eliminate the funded debt ratio and fixed charge coverage ratio as well as add the maximum balance sheet leverage ratio and minimum debt service charge ratio effective March 31, 2013.  The Company was in compliance with all covenants under the credit facility as of December 31, 2013.

In order to finance our operations and growth in the future, we plan to have adequate capital reserves, and/or have access to additional financing from banks, or through public offerings or private placements of debt or equity securities, strategic relationships, or other arrangements.  As a consequence, on September 23, 2013 the Company announced that its Board of Directors and Senior Management have initiated a process to identify and consider a range of operational, financial and strategic alternatives to better pursue its growth strategy and that may accelerate the enhancement of value for the benefit of its stockholders.  During this process, the Company plans to evaluate all of its current and projected risks, opportunities and strategic alternatives.

In the event we fail to meet our financial covenants with our bank, we may not have access through our line of credit to sufficient working capital to pursue our growth strategy, or if our covenant non-compliance triggers a default, our loans may be called requiring the repayment of all amounts on our loans.

Operating Activities

Cash provided by our operating activities for the year ended December 31, 2013 was $0.6 million compared to cash provided of $2.7 million for the corresponding period in 2012.  For the year ended December 31, 2013, cash outflows consisted primarily of an increase in inventory of $3.7 million, increase in deferred income taxes of $0.4 million, increase in prepaid catalog and other assets of $0.4 million and reductions in gift card liability of $0.1 million. Cash inflows were attributable to the results of operations which consisted of net income, non-cash expenses of depreciation, amortization, accrued expenses, payables, stock based compensation and other expenses, which totaled $5.2 million.  For the year ended December 31, 2012, cash outflows consisted primarily of an increase in accounts receivable of $1.0 million, increase in inventory of $0.5 million, increase in deferred income taxes of $0.3 million, reduction in prepaid expenses of $0.3 million and reductions in gift certificate liability of $0.6 million. Cash inflows were attributable to the results of operations which consisted of net income, non-cash expenses of depreciation, amortization, accrued expenses, stock based compensation and other expenses, which totaled $5.4 million.

Investing Activities

Cash utilized from our investing activities was $1.9 million for the year ended December 31, 2013 compared to $2.4 million for the corresponding period in 2012.  Investing activities consisted primarily of retail store improvement costs and new store equipment and fixtures.

Financing Activities

Net cash provided by our financing activities was $1.4 million for the year ended December 31, 2013, compared to cash of $0.3 million utilized in the corresponding period in 2012.  We funded our seasonal operating activities with net borrowings of $2.4 million under our Revolver Facility.

Revolving Credit Facility

On July 30, 2013, the Company and the bank amended the covenants of the revolving line of credit (the “Revolver Facility”) by eliminating the funded debt ratio to EBITDA and fixed charge coverage ratio covenants and adding the covenant of the maximum balance sheet leverage ratio of 2.00:1.00 and the covenant of the minimum debt service coverage ratio of 1.20:1.00.  The amendment was effective as of March 31, 2013.

On March 29, 2013, the Company and the bank amended the revolving line of credit so that the Company can borrow three term loans for capital expenditures used to open new stores.  Under the amended revolving line of credit, the Company can borrow up to $13,000,000, of which up to $1,000,000 can be in the form of letters of credit and up to $8,000,000 can be advanced as term loans, and increase the $13,000,000 maximum up to $20,000,000 at the discretion of the bank.  Funds available under the revolving portion of the line shall be reduced by the outstanding balance of the letters of credit and term loans.  The Company borrowed $2,340,000 as a term loan on March 29, 2013 with equal principal repayments over 60 months.  The Company also borrowed an additional $1,460,000 on December 17, 2013 with equal principal repayments over 54 months starting in July 2014.  The Company may also borrow an additional $3,000,000 by December 31, 2014 to fund

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capital expenditures for store openings.  The term loan funded in December 2013 and 2014 will be interest only for 6 months followed by equal principal repayments over 54 months.  Any outstanding balances borrowed under the credit facility are due in full on March 29, 2015 unless the revolving line of credit is renewed in 2014 for another year.  The credit facility bears interest at the base rate, announced from time to time by the bank, plus an applicable margin determined by the Company’s funded debt ratio.  As of December 31, 2013 the LIBOR (base rate) was 0.17%, plus the applicable margin of 2.25%.  Interest is payable monthly.  At its option the Company may have all or a portion of the unpaid principal under the credit facility bear interest at various LIBOR or prime rate options.

The Company is obligated to pay commitment fees of 0.20% per annum on the average daily, unused amount of the Revolver Facility during the preceding quarter. All assets of the Company collateralize the Revolver Facility.  Under the terms of the Revolver Facility, the Company is subject to certain covenants including, among others, maximum balance sheet leverage ratio, minimum debt service charge coverage ratio, minimum current asset ratios, and maximum capital expenditures.

Under the terms of this credit facility, the Company is subject to various covenants.  At December 31, 2013, the Company was in compliance with all of the covenants under the credit facility.

Term Notes, Senior Subordinated Notes Payable and Warrants

On March 28, 2011, the Company borrowed $5,500,000 in the form of a 7-year term note from the bank to refinance the $5,000,000 senior subordinated notes and deferred interest on those notes. The initial floating rate interest on the $1,600,000 of principal (the variable interest rate portion of the term note) was 5.4% consisting of a 1.0% LIBOR floor plus a 4.4% margin.  The initial floating rate interest on the $3,900,000 of principal (fixed portion of the term note with the interest rate swap discussed below) was LIBOR plus 4.4%.  On April 1, 2011, the Company entered into an interest rate swap contract to fix the interest rate at 7.4% on $3,900,000 of the term note principal.  The remaining $1,600,000 of the principal bears interest at a floating rate based on a base rate, with a minimum of 1.0% as announced from time to time by the bank, plus a 4.4% margin.  As of December 31, 2013, the LIBOR rate (base rate) was 0.17%.  Interest is payable monthly.  The Company is obligated to repay $786,000 of principal annually that commenced in April 2013 and extends to March 2020.  The Company is further obligated to accelerate repayment of up to $1,600,000 in principal in the event it has excess cash flow determined by a cash flow recapture formula.  All assets of the Company collateralize the Term Note Facility. Under the terms of the Term Note Facility, the Company is subject to certain covenants including, among others, maximum balance sheet leverage ratio, minimum debt service charge coverage ratio, minimum current asset ratios, and maximum capital expenditures.  For the period ending December 31, 2013, the Company was in compliance with all of the covenants under the Term Note Facility.

In connection with the issuance of the prior subordinated notes, the Company issued warrants to the note holders, exercisable at any time after December 11, 2007 for an initial 118,170 shares of its common stock at a revised exercise price of $2.75 per share.  The number of shares to be received for the warrants, upon exercise, is subject to change in the event of additional equity issuances and/or stock splits. The warrants were estimated to have a fair value of $272,000, which was reflected as a discount of the proceeds.  The discount was amortized through interest expense while the notes were outstanding and the unamortized discount was fully expensed at refinancing.  The warrants issued in connection with the subordinated notes are still outstanding and terminate on December 10, 2016.

Working Capital and Capital Expenditure Needs

The Company believes our existing cash, cash equivalents, expected cash to be provided by our operating activities, and funds available through our revolving credit facility will be sufficient to meet our currently planned working capital and capital expenditure needs over at least the next twelve months. We anticipate increasing capital expenditures by adding stores in 2014 and beyond. Our future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our marketing and sales activities, the expansion of our retail stores, the acquisition of new capabilities or technologies and the continuing market acceptance of our products. To the extent that existing cash, cash equivalents, cash from operations and cash from our revolving credit facility under the conditions and covenants of our credit facilities are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. Although we are currently not a party to any agreement or letter of intent with respect to potential investments in, or acquisitions of, businesses, services or technologies which we anticipate would require us to seek additional equity or debt financing, we may enter into these types of arrangements in the future.  There is no assurance that additional funds would be available on terms favorable to us or at all.  Funds from our revolving credit facility may not be available if we fail to meet the financial covenants contained in the loan agreements with our lender. At December 31, 2013, the Company was in compliance with all of its covenants under the credit facility.

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Off-Balance Sheet Arrangement

As of December 31, 2013, we had no off-balance sheet arrangements as defined in Item 303(a) (4) of the Securities and Exchange Commission’s Regulation S-K.

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates.

The Company believes that of our significant accounting policies, which are described in the notes to our consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, we believe that the following accounting policies are the most critical to fully understanding and evaluating our consolidated financial condition and results of operations.  In addition, we define our same store sales to include sales from all stores open for a full fifteen months following a grand opening, or a conversion to a Dover-branded store.

Revenue Recognition

Revenues are recognized when payment is reasonably assured, the product is shipped and title and risk of loss have transferred to the customer.  For direct merchandise sales, this occurs when product is delivered to the common carrier at the Company’s warehouse.  For retail sales, this occurs at the point of sale.  For the periods presented, the merchandise returns reserve has been set to 13.3% of gross revenue to reflect recent trends; resulting in reserves of $940,000 and $815,000 for the years ended December 31, 2013 and 2012, respectively.

Shipping and handling fees charged to the customer are recognized at the time the products are shipped to the customer and are included in net revenues. Shipping costs are included in cost of goods sold.

Gift Card and Gift Card Breakage

The Company’s proceeds from the sale of gift cards are recorded as a liability and are recognized as revenue when the cards are redeemed for merchandise. Through the year ending December 31, 2011, all unredeemed gift card proceeds were reflected as a liability until redeemed. During the first quarter of 2012, the Company identified a history of redemption and breakage patterns associated with its gift cards, which support a change in the estimate of the term over which the Company recognizes income on gift card breakage. Accordingly, beginning with the first quarter of 2012, the Company began to recognize revenue from the breakage of gift cards when the likelihood of redemption of the gift card is remote and there is no legal obligation for the Company to remit the value of such unredeemed gift cards to any relevant jurisdiction.

The Company determines its gift card breakage rate based upon historical redemption patterns. Based on this historical information, the likelihood of a gift card remaining unredeemed can be reasonably estimated at the time of gift card issuance.  From the point which the likelihood of redemption is deemed to be remote (gift cards that were issued three years prior and remain unredeemed) and for which there is no legal obligation to remit the value of such unredeemed gift cards to any relevant jurisdictions, breakage income is recognized over a two year period.  Breakage revenue for the year ending December 31, 2013 of $120,584 was recognized as revenue, net, in the accompanying condensed consolidated statements of income and comprehensive income.  Breakage revenue for the year ending December 31, 2012 of $607,892 was recognized as revenue, net, in the accompanying condensed consolidated statements of income and comprehensive income, which included the cumulative impact of the change of $441,362.  The gift certificate liability balance was $1.8 million and $1.6 million for the years ending December 31, 2013 and 2012, respectively.

Inventory Valuation

Inventory consists of finished goods in the Company’s mail order warehouse and retail stores. The Company’s inventory is stated at the lower of cost, with cost determined by the first-in, first-out (FIFO) method, or net realizable value. The Company maintains a reserve for excess and obsolete inventory.  This reserve was $120,000 for the years ended December 31, 2013 and 2012. The Company continuously monitors the salability of its inventories to ensure adequate valuation of the related merchandise.  Inventory valuation charges have remained consistent throughout each period presented.

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Advertising Costs and Catalog Expenses

The costs of direct-response advertising materials, primarily catalog production and distribution costs, are deferred.  These costs are recognized over the period of expected future revenue, which is less than one year. Advertising costs not related to our direct response catalogs and marketing activities are expensed as incurred.

Income Taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax basis of assets and liabilities and net operating loss and credit carry forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when it is more likely than not that some portion of the deferred tax assets will not be realized.

The Company has reviewed its tax positions to determine whether the positions are more likely than not to be sustained upon examination by regulatory authorities. If a tax position meets the more-likely-than-not standard, then the related tax benefit is measured based on a cumulative probability analysis of the amount that is more-likely-than-not to be realized upon ultimate settlement or disposition of the underlying issue.

Stock-based Compensation

The Company accounts for share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense in the statements of income and comprehensive income based on their fair values. Refer to Note 7 in the Company’s Consolidated Financial Statements in Item 8 of Part II of this Annual Report, for further discussion of stock-based compensation recognized for periods presented.

Impairment of Long-lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company does not believe that any of our long-lived assets were impaired as of December 31, 2013 and 2012.

Recent Accounting Pronouncements

In February 2013, the FASB issued Accounting Standards Update 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The guidance in this ASU requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (U.S. GAAP) to be reclassified in its entirety to net income. For other amounts that are not required under U .S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account instead of directly to income or expense in the same reporting period. The amendments in this ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. Public companies are required to comply with the requirements of this ASU for all reporting periods (interim and annual) beginning after December 15, 2012. The Company expects adopted this amendment in the first quarter of 2013 and it did not have a material impact on its consolidated financial statements.

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Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.

Foreign Currency Risk

All of the Company’s revenues are derived from transactions denominated in U.S. dollars. We purchase products in the normal course of business from foreign manufacturers. As such, we have exposure to adverse changes in exchange rates associated with those product purchases, but this exposure has not been significant.

Impact of Inflation

The Company believes the effects of inflation, if any, on our results of operations and financial condition have not been material in recent years.

Interest Rate Sensitivity

The Company had cash and cash equivalents totaling $0.3 million at December 31, 2013. The unrestricted cash and cash equivalents were held for working capital purposes. We do not enter into investments for trading or speculative purposes. We intend to maintain our portfolio of cash equivalents, including money market funds and certificates of deposit. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value as a result of changes in interest rates. As of December 31, 2013, all of our investments were held in money market funds.

The Company’s exposure to market risk also relates to the increase or decrease in the amount of interest expense we must pay our outstanding debt instruments, primarily certain borrowings under our Revolver Facility and on the $1,600,000 of the term notes that bear interest at a floating rate. The advances under the Revolver Facility and the $1,600,000 of principal of the term note bear a variable rate of interest determined as a function of the prime rate or the published LIBOR rate at the time of the borrowing. If interest rates were to increase by two percent, the additional interest expense during the year ended December 31, 2013 would have been approximately $71,000.  At December 31, 2013, $3,543,000 was outstanding under our Revolver Facility and Capex Term Loans.

The Company uses an interest rate swap contract as a cash flow hedge to eliminate the cash flow exposure of interest rate movements on variable rate debt.  The Company’s term note is a variable rate instrument.  On April 1, 2011 the Company entered into a 7-year interest rate swap contract on the notional value of $3,900,000 of the term note which requires payment of a fixed interest rate of interest (7.4%) and the receipt of a variable rate of interest, based on one month LIBOR rate, on the $3,900,000.

The Company designated this interest rate swap contract as an effective cash flow hedge.  The Company anticipates that this contract will continue to be effective.  The Company does not hold any derivative instruments that are not designated as a hedging instrument.

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Item 8.  Consolidated Financial Statements and Supplementary Data.

The Company has elected as a smaller reporting company not to furnish certain quarterly financial data and other supplementary data.

DOVER SADDLERY, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Dover Saddlery, Inc.

Littleton, Massachusetts

We have audited the accompanying consolidated balance sheets of Dover Saddlery, Inc. and subsidiaries (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dover Saddlery, Inc. and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ McGladrey LLP

Boston, Massachusetts

March 31, 2014

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Table of Contents

DOVER SADDLERY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See accompanying notes.

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DOVER SADDLERY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

DOVER SADDLERY, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

See accompanying notes.

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DOVER SADDLERY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

See accompanying notes.

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DOVER SADDLERY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS