UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER
31, 2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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Commission file number
000-51624
Dover Saddlery, Inc.
(Exact Name of Registrant as
Specified in its Charter)
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Delaware
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04-3438294
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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525 Great Road, Littleton,
MA
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01460
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(Address of Principal Executive
Offices)
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(Zip Code)
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Registrants telephone number, including area code:
(978) 952-8062
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Exchange on Which Registered
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Common Stock, $0.0001 par value
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The NASDAQ Stock Market LLC
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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 o No þ
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 o No þ
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 þ No o
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
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files.) Yes o No o
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 registrants 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. o
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 the definitions of
large accelerated filer, accelerated
filer, and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company þ
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
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 registrants most recently completed
second fiscal quarter was $6,719,127.
Shares outstanding of the Registrants common stock at
March 22, 2010: 5,263,975
DOCUMENTS
INCORPORATED BY REFERENCE
Certain portions of the Proxy Statement for the Annual Meeting
of Stockholders of Dover Saddlery, Inc. to be held on
May 5, 2010 which will be filed with the Securities and
Exchange Commission within 120 days after December 31,
2009, are incorporated by reference in Part III of this
Form 10-K.
DOVER SADDLERY,
INC.
INDEX TO ANNUAL REPORT ON
FORM 10-K
For the Year Ended December 31, 2009
1
PART I
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. Managements
Discussion and Analysis of Financial Condition and Results of
Operations. We disclaim any intent or obligation to update
any forward-looking statements.
The
Company
We are a leading specialty retailer and the largest direct
marketer of premium equestrian products in the U.S. For
over 30 years, Dover Saddlery has been a premier upscale
brand in the English-style riding industry. We sell our products
through a multi-market channel strategy, including direct and
retail. This multi-market 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.
We offer a comprehensive selection of products required to own,
train and compete with a horse, selling from under $1.00 to over
$7,000. Our 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.
We have historically focused on the English-style riding market.
Dover is known for providing the highest quality products for
English-style riding, including premier brands such as Hermes,
Ariat, Grand Prix, Mountain Horse, Passier and Prestige. We
offer what we believe is the largest selection of exclusive and
semi-exclusive equestrian products in the industry. To further
broaden our offerings, we began selling into the Western-style
riding market in 2002 under the Smith Brothers name.
Our management team is highly experienced in both the direct and
retail channels with an average of more than 30 years of
equestrian experience. Since Stephen Day acquired an ownership
interest in Dover and joined as our President and Chief
Executive Officer, he and the rest of the management team have
grown annual revenues from $15.6 million to
$76.0 million from 1998 through 2009. Prior to joining
Dover, Mr. Day was responsible for building the only other
national English-style equestrian products direct marketing and
retail company, State Line Tack.
We have positioned ourselves 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.
2
Through our subsidiaries, as of December 31, 2009, we
operated twelve 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
initial 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 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 multi-channel
retailers, we believe that expanding the number of retail store
locations and focusing on our multi-market channel strategy are
keys to our continued success. However, the significant
challenges presented by the current uncertainty in the economic
outlook have required us to place this long-term expansion
strategy on hold.
Our mission is to grow our business by providing the most
comprehensive offering of the highest quality, broadest range
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
Dover 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 industrys customers. As a result of their
focus on quality and premium positioning, Dover Saddlery has
been a premier upscale brand in the English riding industry for
over 30 years. The Powers opened our Wellesley, MA retail
store in 1975 and began catalog operations in 1982.
By 1998, our revenues had grown to approximately
$15.6 million. In September 1998, Stephen Day, our current
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, and 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.
Our management team identified the large Western-style
equestrian market as a growth opportunity and, in 2002, we
acquired the Smith Brothers catalog and website,
www.smithbrothers.com. In 2003, we also
acquired rights in the Millers Harness brand for use in
catalog and Internet sales to target entry-level and lower-cost
equestrian products customers. 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,
we 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 the four stores
into Dover Saddlery stores, including one in 2006. In September
2006, we opened our new Hunt Valley, MD store.
In 2007, we opened or converted four stores under the Dover
brand. In 2008, we opened two stores under the Dover brand, and
in 2009, we opened one store under the Dover brand. As of
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December 31, 2009, we operated twelve stores under the
Dover Saddlery brand and one store under the Smith Brothers
brand.
Competitive
Strengths
We believe that we are uniquely positioned in the equestrian
tack, specialized apparel and horse care and stable products
industry to grow through our multi-market channel strategy. We
believe that we have numerous competitive strengths, including:
Experienced Management with a Track Record of Growth and
Profitability: We were founded in 1975 and have
over 30 years of operating history. Stephen Day joined
Dover 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 30 years of equestrian
experience. Since Stephen Day became President and Chief
Executive Officer in 1998, we have grown annual revenues from
$15.6 million to $76.0 million.
Established Brand in English-Style Riding Equipment and
Apparel: We are known for offering the highest
quality products, the most comprehensive selection and excellent
customer service. Since our founding over 30 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 multi-market 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 multi-market channel growth strategy.
Leading Equestrian Products Retailer of Quality
Tack: With $76.0 million in 2009 revenues
from our two market channels, 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 becoming a strong force in the Western-style riding
market.
Large, Detailed Customer Database: We believe
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 30 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 Multi-Market Channel Strategy: Our
multi-market 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
multi-market 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 eleven new stores bringing our
Dover branded retail store count to twelve and adding a single
Smith Brothers branded retail store.
Excellent Customer Service: Our 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 channels of purchase. 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 96% of the items ordered within an
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average of 1.6 business days in 2009 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 $43,318. Our customer base has been very loyal as
demonstrated by high repurchase rates.
Significant Barriers to Entry: We enjoy
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 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.
Broad and Distinctive Selection of High Quality, Need-based
Products at Competitive Prices with Rapid Order Fulfillment
Capability: We have feature-rich, need-based,
functional offerings encompassing virtually every product
necessary to own, 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 price points to the premium high-end. 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 to this,
approximately 85% of our products are non-obsolescent items.
Our large inventory has allowed us to ship approximately 96% of
the items ordered within an average of 1.6 business days in
2009. 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 of that of our Littleton, MA warehouse. 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 ready availability of our $15.3 million
in total inventory.
Growth
Strategies
Having established ourselves as the largest direct 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 multi-market channel customers have
bought, on average, nearly three times more product per year
than single-channel customers, and therefore, a multi-market
channel model is a key part of our strategy to grow our
revenues, profits and market share. Our growth strategy includes
several key components.
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Open Dover Saddlery Retail Stores in Targeted
Locations: As of December 31, 2009, we
operated twelve 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 $5.7 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. We have identified 50
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 and recalibrates when actual stores are
targeted and added. 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 initial 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: Our catalog
business drives traffic to our Internet store and retail market
channel. We plan to expand our direct market channel business
through 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. We plan to continue to utilize web-based opportunities
with promotional, targeted
e-mails
programs,
refer-a-friend
programs and on-line search engines. 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: We carry 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 intend to
expand our direct marketing, and eventually, our retail store
presence in Western-style riding.
2009
Accomplishments
In pursuit of our goals as the largest equestrian retailer of
quality tack and specialty riding apparel, we accomplished the
following in 2009:
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We opened one Dover branded retail location in North Kingstown,
RI
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We continue to enhance and expand the Dover Saddlery product
offering
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We implemented strong cost controls to enhance earnings
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We strategically reduced inventory while meeting optimal
in-stock availability for our customers
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Industry
Equestrian
Products Market
The North American market for equestrian tack, saddles,
specialized apparel, grooming and healthcare products, horse
clothing, equestrian-related media and other horse supplies is
estimated by the American Horse Council at $7.6 billion for
2004. 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 $5.7 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, will be
showing over 16 hours of events from the World Equestrian
Games. The World Equestrian Games will be held for the first
time in the United States in September 2010.
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
brands (e.g., Dell Computer, Lands End, and 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 companys
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 $134.9 billion in 2009. This
was an increase of 2.0% from 2008. As the price of personal
computing declines and Americans become more technologically
savvy, many are choosing to browse and buy over the Internet.
Moreover, an increasing number of Internet users are turning to
broadband service that allows faster, more convenient access to
online shopping.
We believe that a large, highly fragmented industry with
affluent, passionate horse enthusiasts presents us with the
opportunity to use our reputation and multi-market channel
strategy to increase our market share and revenues in the future.
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Customers
Our 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 $43,318 as reported by the
2003 U.S. Census. Our customer database provides for each
customer a summary of the recency, frequency and monetary value
of that customers 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 Multi-Market
Channel Strategy
Having established ourselves as the largest direct marketer of
equestrian tack, specialized apparel, horse care and stable
products in the U.S., we plan to continue our multi-market
channel retail strategy to capitalize on our strong brand equity
and utilize our customer database. This multi-market 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
multi-market 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 multi-market channel retailers such as Eddie
Bauer and JC Penney. Eddie Bauers multi-market channel
customers spend, on average, approximately six times more than
its single-channel customers and JC Penneys
multi-market channel customers spend, on average, approximately
five times more than its single-channel customers.
Our multi-market channel business model has several key elements:
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Our catalogs are targeted marketing tools which we use to
generate customers, gather customer demographic data, increase
the visibility of the Dover Saddlery and Smith Brothers brands,
increase visits to the Internet and drive traffic to our retail
stores;
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Utilize our large, information-rich customer database to
cross-market our products, prospect for customers, forecast
sales, manage inventory, tailor catalog mailings and plan for
our retail store expansion; and
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Use our proprietary mathematical store-optimization model to
target the strongest markets nationwide and optimize store
spacing for our retail location selection. Based on the latest
customer data and actual store openings, our proprietary
software maps out the entire country with our catalog sales and
extrapolates ideal locations for our stores such that we can
capture the greatest density of potential customers. The model
is dynamic such that any change in a single location or number
of total locations will impact site selection and estimated
performance system wide.
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Based on research of other similar multi-market channel
concepts, we believe that, when mature, the natural channel
balance of a multi-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 under 32.6% of
our total revenues coming from retail stores, we believe that
there is significant opportunity to continue to develop our
multi-market channel strategy and pursue our targeted retail
store expansion. See Retail Store Operations and
Expansion.
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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 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
30 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 multi-channel
shopping over the Internet or by catalog has been appealing to
our 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.
We seek to continually improve our 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 three
e-commerce
websites. As we implement 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
$51.0 million in revenues in 2009 or 67.4% 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 circulation list. We develop annually four distinct
Dover Saddlery catalogs and variations of Smith Brothers
catalogs, including a large annual catalog for each line.
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.
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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.
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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.
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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.
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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 and
targeted editions of the Smith Brothers annual catalog.
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 websites are integral to our multi-market channel strategy.
The websites reinforce our relationship with current catalog
customers and are a growing source of new customers. New
customers acquired through the websites have historically been
highly responsive to subsequent catalog mailings.
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.
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 opportunities with
promotional, targeted
e-mail
programs,
refer-a-friend
programs, and online search engines, comparison shopping, engine
and banner advertising.
Retail Store
Operations and Expansion
As of December 31, 2009, we operated twelve stores under
the Dover Saddlery brand and one store under the Smith Brothers
brand. We intend to expand our retail store operations going
forward, primarily under the Dover Saddlery brand as the economy
improves. However, we plan to be very opportunistic in 2010 and
only open additional stores if the real estate costs are
exceptionally attractive. We expect a substantial reduction in
retail store leasing costs and the availability of high quality
real estate to improve dramatically in 2010. We, therefore, will
be focusing on our site selection efforts and lease negotiations
in 2010.
Retail Store
Locations
Dover
Saddlery
New
England
Plaistow, NH
Wellesley, MA
North Kingstown, RI
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Mid-Atlantic
Hockessin, DE
Crofton, MD
Hunt Valley, MD
Branchburg, NJ
Chantilly, VA
Charlottesville, VA
Lexington, VA
South
Alpharetta, GA
Dallas, TX
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 ready
availability of inventory from our warehouse allow 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, according to the customers
preference. Each stores 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 are developing three primary prototype store models for
nationwide rollout A, B, and
C.
A 9,000 to 12,000 square foot A Store model
assumes an average initial net investment of approximately
$1.4 million, including approximately $110,000 of
pre-opening costs and $800,000 of inventory. As of
December 31, 2009, we had four A stores.
A 4,000 to 6,000 square foot B Store model
assumes an initial investment of approximately
$0.9 million, including approximately $80,000 in
pre-opening expenses and $550,000 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, 2009, we had
six B stores.
A C Store model is currently in development and will
be targeted to be a smaller footprint of approximately
3,000 square feet, filling in key markets as appropriate.
As of December 31, 2009, we had two C stores.
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New stores may be established in existing leased space or newly
constructed facilities. Our new-construction stores will be
designed in conjunction with Morton Buildings, a nationwide
builder of upscale barns.
Site
Optimization
We have 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 and recalibrates,
as necessary, when actual stores are targeted and added. 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
Our Dover Saddlery and Smith Brothers catalogs are our primary
branding and advertising vehicles. We believe our catalogs
reinforce our brand image and drive sales in all of our market
channels. Our direct market channel enables us to maintain a
database of customer sales patterns and thus target segments of
our customer base with specific marketing. Our customer database
provides for each customer a summary of the recency, frequency
and monetary value of that customers orders as well as a
detailed listing of each item the customer has ordered over the
past five years. Depending on the spending habits we identify
through our customer database, we send certain customers special
catalog editions
and/or
e-mails.
We market our websites by the use of paid key words and
augmented natural search. We actively seek beneficial links and
are currently linked from hundreds of equine websites. Banner
advertising is presently placed on the leading equestrian
content sites and we have an active
refer-a-friend
program.
Other branding and advertising vehicles we employ include
running print ads in local newspapers and trade magazines,
sponsoring equestrian events and issuing press releases for
major new product offerings. We also offer a Dover Saddlery
branded credit card that allows our frequent customers to
accumulate reward points that can be redeemed for discounts
toward future purchases.
Order Processing
and Fulfillment
A majority of our orders are received by telephone, but Internet
orders have rapidly increased since the introduction of our
first website in 2000. 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 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 customers 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.
Our 100,000 square foot Littleton, MA warehouse and office
facility also serves as our 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
$15.3 million in
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on-hand inventory as of December 31, 2009. With our
extensive inventory position and rapid fulfillment capability,
we have historically been able to fill approximately 96% of the
items ordered within an average of 1.6 business days in 2009.
Based on our inventory management systems, continuous monitoring
of the products we carry and the fact that we carry very few
fashion products, we have historically had very little obsolete
inventory. Despite the high level of inventory we have
historically maintained, our goal is to turn warehouse inventory
four 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 order status and inventory
availability. On average, our 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 customers home or for in-store pickup.
Product Mix and
Merchandising
We offer feature-rich, need-based, functional products
encompassing virtually every product necessary to own, 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
more relatively predictable. The low SKU turnover reduces
inventory obsolescence and overstock risks.
Competition
We compete 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
over twice the size 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 industrys most comprehensive database.
The retail 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
We experience seasonal fluctuations in our revenues 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 2009, we generated 29.1% of our annual
revenues during the fourth quarter.
Employees
At December 31, 2009 we had 520 employees;
approximately 199 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.
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Trademarks and
Trade Secrets
Our 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.
We maintain, 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
We electronically file 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 SECs
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 SECs
website at www.sec.gov.
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 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.
Our cost savings
initiatives may have a negative impact on our market share in
the short run.
During 2009, through our cost-cutting efforts, we reduced
operating expenses. Much of these savings have been achieved
through decreased marketing expenditures and reductions in labor
hours. We believe these measures were necessary and appropriate
to maintain the health of our business in response to current
economic conditions. However, our cost-cutting measures may also
have some negative effect on our market share in the short run.
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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.
Throughout most of 2009, the global economy has experienced a
significant contraction, with an almost unprecedented lack of
availability of business and consumer credit. It is not clear
when a sustained 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 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 difficulties experienced by our suppliers or
distributors could result in product delays and discontinuances,
a lack of new products, inventory challenges, and less favorable
trade credit terms.
A decline in
discretionary consumer spending and related externalities could
reduce our revenues.
Our 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.
Our 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 our 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 EBITDA, total debt and related covenants. In the last
fiscal quarter of fiscal year 2008 and in the first quarter of
fiscal 2009, prior to loan amendment, we would have failed to
comply with one or more of these covenants. Subsequent to
completion of our loan amendment, we were in compliance with all
covenants associated with our revolving credit facility for the
year ended December 31, 2009. 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 lenders to open new stores, or in the worst case, trigger
default and require the repayments of all amounts then
outstanding on our loans. In the event of our insolvency,
liquidation, dissolution or reorganization, the lenders under
our revolving credit facility 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. We may
also need to raise additional capital in the future to respond
to competitive pressures or unanticipated
15
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.
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.
Our market is
highly competitive and we may not continue to compete
successfully.
We compete 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, we may have to reduce our prices in order
to compete. Our cost cutting measures in fiscal 2009 may
also have some negative effect on our market share in the short
run. 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 economic
recession continues or we cannot successfully execute our
planned retail store expansion, our growth and profitability
would be adversely impacted.
As of December 31, 2009, we had thirteen retail stores. In
response to the recent economic recession, we placed on hold our
plan to rapidly increase the number of retail stores. A
significant percentage of our projected future growth had been
expected to be generated from these new locations. If we
experience continued 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.
When the economy begins to rebound, our subsequent ability to
expand our retail presence depends in part on the following
factors:
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favorable economic conditions;
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our ability to identify suitable locations in key markets with
attractive demographics and which offer attractive returns on
our investments;
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the availability of suitable locations at price points
consistent with our expansion model;
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our ability to negotiate favorable lease and construction terms
for such locations;
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our ability to execute sale/leaseback transactions on
satisfactory terms, if at all;
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competition for such locations;
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the timely construction of such retail stores;
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our ability to receive local and state government permits and
approvals in connection with such locations;
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our ability to attract, train, and retain skilled and
knowledgeable store personnel; and
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our ability to provide a product mix that meets the needs of our
customers.
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In addition, each retail store is expected to require
approximately $0.9 to $1.4 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.
We may continue
to be unable to open new stores and enter new markets
successfully.
An important part of our business plan had been to increase our
number of stores and enter new geographic markets. In light of
the recent economic recession, the Company has placed that plan
on hold. Since the IPO, we had opened five new stores through
December 31, 2009 and remodeled, expanded and converted
four stores from the Dominion Saddlery acquisition. In the
future, when the economy begins to rebound, 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.
Our 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 the securities
analysts that regularly follow our stock lower their ratings or
lower their projections for future growth and financial
performance, the market price of our stock is likely to drop
significantly. In addition, if our quarterly financial
performance does not meet the expectations of securities
analysts, 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 our common stock and limited liquidity may
negatively impact our stock price.
When our shareholders sell substantial amounts of our common
stock, the market price of our 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 Companys Officers or
Directors, perceiving that such a plan represents a decline in
managements confidence about the Companys 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. The three year decline in the
general trading range of the price of our common stock
17
together with the cyclical retail sector with which we are
grouped, could reduce interest in our Company and thus, continue
to deflate demand for purchasing shares of our common stock.
Technology
failures and privacy and security breaches could adversely
affect the companys business.
A significant part of our overall revenues derives from our
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,
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 our
information technology systems fail to perform as designed or if
we need to make system changes in order to support our 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.
We may experience operational problems with our 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.
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.
Our growth may
strain operations, and finances, which could adversely affect
our business and financial results.
Our 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
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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, default, any one or more of
which may in turn adversely affect our business and financial
performance.
Our quarterly
operating results are subject to significant
fluctuation.
We experience 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 market, 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 second 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.
Our 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.
19
Our shareholders
may experience dilution in their ownership positions.
We have historically granted options to employees as a
significant part of our overall compensation package. As of
December 31, 2009, our employees and non-employee directors
held vested options in the aggregate to acquire
433,829 shares of common stock, all of which were
exercisable at a weighted average exercise price of $5.91 per
share. As previously reported, in December 2009, our CEO
purchased for cash 76,937 shares of the Companys
common stock through exercise of an incentive stock option at
$2.14 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.
Pursuant to current accounting rules, the Company has been
required to take a current charge, beginning in the fourth
quarter of fiscal 2005, for compensation expense associated with
our grant of stock options. For the year ended December 31,
2009, we recognized $179,000 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 we cannot
continue to successfully generate demand from our direct market
channel, it would negatively impact our growth and
profitability.
Revenues from our direct market channel generated 67.4% of our
revenues in 2009, and we expect such demand to continue to
generate a majority of our revenues for at least the next
several 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:
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favorable economic conditions;
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our ability to offer a product mix that is attractive to our
customers;
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the price point of our products relative to our competitors;
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our ability to achieve adequate response rates to our mailings;
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our ability to add new customers in a cost-effective manner;
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timely delivery of catalog mailings to our customers;
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an efficient Internet interface;
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a seamless buying experience for our customers across both of
our channels; and
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cost effective and efficient order fulfillment.
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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 would 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
20
cost-effective manner. Lack of consumer response to particular
catalog or flier mailings or Internet marketing efforts may
increase our costs and decrease the profitability of our
business.
The expected
re-launch of our retail store rollout could cannibalize existing
sales from our direct market channel or existing retail
locations.
In response to the recent economic recession, the Company has
placed on hold its plan to rapidly increase the number of retail
stores. When the economy begins to rebound, we expect to
re-launch that plan. 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 multi-market 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
stores 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.
When we are able
to re-launch our retail store expansion plan, our quarterly
revenues and earnings could be variable and unpredictable and
inventory levels will increase.
Over the next several years, when the economy rebounds, we
expect to renew our retail store expansion strategy. As we open
new stores, (i) revenues may fluctuate, and
(ii) pre-opening expenses are 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 headcount and lease 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.
We rely on
service providers to operate our business and any disruption of
or substantial increases in the costs of their supply of
services could have an adverse impact on our revenues and
profitability.
We rely on a number of service providers to operate our business
such as:
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a printer and a database processor to produce and mail our
catalogs;
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a website hosting service provider to host and manage our
websites;
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telephone companies to provide telephone and fax service to our
customer service centers and to communicate between
locations; and
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shipping companies such as FedEx, the U.S. Postal Service,
UPS, and common carriers for timely delivery of our catalogs,
shipment of merchandise to our customers and delivery of
merchandise from our suppliers, including foreign suppliers, to
us and from our warehouse to our retail stores.
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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.
21
We rely 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.
We rely 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. In
2009, our single largest merchandise supplier accounted for less
than 11% 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. Their business may be adversely
affected by the current economic recession, which may curtail
part or all of the products we procure from them. If we are
unable to acquire suitable merchandise in a timely manner,
obtain favorable credit terms, or lose one or 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 we do not
properly manage our inventory levels, our operating results and
available funds for future growth will be adversely
affected.
We currently maintain a high level of inventory and have 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 amount 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 hurt
our operating results. If we do not meet the needs of our
customers, they may decide to 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 disruption at our Littleton, MA warehouse
fulfillment center could cause us to lose merchandise and be
unable to deliver products to our direct sales customers and our
retail stores.
We currently rely on our Littleton, MA warehouse to handle our
fulfillment needs. Any natural disaster or other serious
disruption to this center 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 and
could result in lost revenues and increased costs.
If we lose key
members of management or are unable to retain the talent
required for our business, our operating results could
suffer.
Our 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 Operating
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. Effective as of
September 1, 2005, we have entered into employment
agreements with Mr. Day 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
these individuals or the inability to attract and retain
qualified individuals for our
22
key management and retail sales positions may have a material
adverse effect on our operating results.
We may need
additional financing to execute our growth strategy, which may
not be available on favorable terms or at all, which could
increase our costs, limit our ability to grow and dilute the
ownership interests of existing shareholders.
Our current revolving credit facility is due in full on
January 31, 2011, and its borrowing limit is scheduled for
reduction to $13,000,000 on June 30, 2010, 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.
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.
We rely on
foreign sources for many of our products, which subjects us to
various risks.
We currently source approximately one quarter of our products
from foreign manufacturers located in Europe, Asia and South
America. 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, 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 in the future 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.
We do not currently, and we do 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.
When we re-launch
our retail store expansion strategy, it may result in our direct
market channel establishing a nexus with additional states,
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.
When we re-launch our retail store expansion strategy and begin
to open retail stores in additional states, the necessary
relationship between the retail stores and our direct market
channel
23
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 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 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 we fail to
adequately protect our trademarks, our brand and reputation
could be impaired or diluted and we could lose
customers.
We have, or have rights to, four trademarks that we consider to
be material to the successful operation of our business: Dover
Saddlery, Smith Brothers, Millers Harness and The Source.
We currently use all of these marks in our direct channel
business. We also have several additional pending trademark
applications. We also 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.
We 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 Millers Harness trademarks. Other parties
might seek to 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 were 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
24
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:
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be expensive and time consuming to defend;
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prevent us from operating our business, or portions of our
business;
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cause us to cease selling certain products;
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result in the loss of customers;
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require us to re-label or re-design certain products, if
feasible;
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result in significant monetary liability;
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divert managements attention and resources;
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potentially require us to enter into royalty or licensing
agreements in order to obtain the right to use necessary
intellectual property; and
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force us to stop using valuable trademarks under which we market
our products.
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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.
We are subject to
numerous regulations and regulatory changes that could impact
our business or require us to modify our current business
practices.
We are 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, 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.
25
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.
Our 100%
satisfaction guarantee exposes us to the risk of an increase in
our return rates which could adversely affect our
profitability.
Part of our marketing and advertising strategy focuses on
allowing customers to return products ordered from our catalogs
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.
Our 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 our 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:
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create greater awareness of our products and brand name;
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determine the appropriate creative message and media mix for
future marketing expenditures;
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effectively manage marketing costs, including creative and
media, to maintain acceptable costs per inquiry, costs per order
and operating margins; and re-growth of revenue when the economy
rebounds; and
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convert inquiries into actual orders.
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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.
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Item 1B.
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Unresolved
Staff Comments.
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To the best of the Companys knowledge, there are no
unresolved staff comments as of December 31, 2009.
We currently lease an approximately 100,000 square foot
facility in Littleton, MA for our corporate headquarters, main
call center, warehouse, and fulfillment center. Approximately
92,000 square feet is for warehouse space and the remaining
is for office space. The lease expires in September 2011 and we
have two five-year options to renew thereafter at market rates.
We lease approximately 1,800 square feet of space in North
Conway, NH for use as a satellite call center and for our
creative 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, 2009, we leased approximately
97,000 square feet of space for our thirteen retail stores
located in Massachusetts (1), Virginia (3), New Hampshire (1),
Maryland (2), Delaware (1), Texas (2), New Jersey (1), Georgia
(1) and Rhode Island (1).
26
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Item 3.
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Legal
Proceedings.
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From time to time, the Company is exposed to litigation relating
to our products and operations. Except as described below, we
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.
The Company had been named as a defendant in litigation brought
by one of its customers against the manufacturer of a riding
helmet for injuries sustained in an equestrian accident. To the
best of the Companys knowledge, the product was designed
and manufactured by the vendor to industry standards. During
2009, the claim against Dover was settled and fully covered by
the Companys insurance.
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities.
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Market
Information.
Our common stock trades on The NASDAQ Stock Market LLC under the
symbol DOVR. As of March 8, 2010, the record
date for our 2009 Annual Meeting of Stockholders, the number of
holders of record of our common stock was 29 and the approximate
number of beneficial owners was 705.
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:
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High
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Low
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Fiscal Year Ended December 31, 2009
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First Quarter
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$
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2.30
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$
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1.25
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Second Quarter
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2.98
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1.40
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Third Quarter
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2.29
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1.52
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Fourth Quarter
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$
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2.50
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$
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2.01
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Fiscal Year Ended December 31, 2008
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First Quarter
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$
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5.93
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$
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3.20
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Second Quarter
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4.79
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|
3.25
|
|
Third Quarter
|
|
|
3.92
|
|
|
|
2.40
|
|
Fourth Quarter
|
|
$
|
2.53
|
|
|
$
|
1.13
|
|
We have 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 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, and by Item 201(e) of
Regulation S-K,
Performance Graph, 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.
As previously reported in its Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2008, the Company
consummated on April 11, 2008 the acquisition of a
significant non-controlling
27
interest in Hobby Horse Clothing Company, Inc., in exchange for
81,720 shares of unregistered Dover common stock (the
Dover Acquisition Shares) issued to Richard D.
Naulty and Patricia Naulty, Trustees of Naulty Family 1994
Living Trust, the seller of such non-controlling interest.
Details of this investment and related obligations are set forth
in Note 4 to the audited financial statements in this
Annual Report. Since October 11, 2008, the Dover
Acquisition Shares are no longer restricted securities under
Rule 144.
The issuance of securities described above was deemed to be
exempt from registration under the Securities Act of 1933 in
reliance on Section 4 (2) of the Securities Act of
1933 as a transaction by an issuer not involving any public
offering. The recipient of securities in that transaction
represented his intention to acquire the securities for
investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were
affixed to the share certificates and other instruments issued
in that transaction. The sales of these securities was made
without general solicitation or advertising.
For history of the Companys debt and equity financing
activity prior to January 1, 2008, see Part II,
Item 5 of the Companys Annual Report on
Form 10-K
for the fiscal year ending December 31, 2007, as filed with
the SEC on April 2, 2008.
Issuer Purchases
of Equity Securities
During the fiscal quarter ended December 31, 2009, 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.
|
Managements
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 a rebounding economy, 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
We are the leading specialty retailer and the largest direct
marketer of equestrian products in the U.S. For over
30 years, Dover Saddlery has been a premier upscale
marketing brand in the English-style riding industry. We sell
our products through a multi-channel strategy. This
multi-channel strategy has allowed us to use catalogs and our
proprietary database of nearly 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.
28
In November of 2005, we took Dover Saddlery public using the
Open
IPO®
process. The proceeds of that offering were used to retire debt
and launch our retail rollout.
Our strategy for growth has been to open additional retail
stores using our proprietary mathematical store optimization
model to select the sites. Our initial target of 50 retail
locations is now 25% complete, with 13 locations up and
operating.
The recession of 2009 was 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 2009, our three-year investment in our retail expansion
generated a 12.3% increase in retail market channel revenues, to
partially offset the economic drop in direct channel revenues.,
resulting in $76.2 million in revenues. Our aggressive cost
controls throughout the Company, and carefully managed
utilization of marketing resources, generated an Adjusted
EBITDA* of $4.1 million, an increase of 23.5% over the 2008
results. The resulting net income was $904,000, or $0.17 per
diluted share. The Company utilized the resulting strong
operating cash flow to reduce our revolving line of credit by
$5.3 million, strengthen our balance sheet, and place the
Company in a strategic position for growth as the retail economy
begins to improve.
The Company developed several short-term strategies to maintain
or expand market share, reduce operating costs and reduce
capital expenditures. In order to manage our way through these
uncertain times, our retail expansion has been strategically
slowed, and we will be extremely opportunistic in negotiating
existing and potentially new leases. Management believes retail
space lease costs should show a total decline by 20% to 30% over
the last quarter of 2009 and the first half of 2010. On a
10,000 square foot location, this is likely to lower the
lease cost by approximately $5.00 per square foot, or $50,000
annually resulting in enhanced store profitability for new
stores opened with a lower lease cost.
The Company believes that the following strategic actions,
initiated in 2009 and continuing into 2010, will allow it to
successfully weather the present negative macroeconomic
conditions and generate positive growth in sales and earnings as
consumer confidence is restored and the economy turns around.
These are:
|
|
|
|
|
Aggressive 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 scaling back 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
Companys customers have returned to normal spending
behavior, which will allow Dover to increase its marketing
activities.
|
In this time of economic uncertainty, it is very difficult to
accurately predict economic trends; however, as changing market
conditions become clear, we will adapt our strategies to address
these new conditions.
Consolidated
Performance and Trends
The Company reported net income for the year ended
December 31, 2009 of $904,000 or $0.17 per diluted share
This is compared to a net loss of ($13.8) million or
($2.68) per diluted share
* 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, Managements Discussion and Analysis
of Financial Condition and Results of Operations, of
Item 7 of this Annual Report on
Form 10-K.
29
for the corresponding period in 2008, which included a non-cash,
non-tax deductible goodwill impairment charge of
$14.3 million triggered by declines in the Companys
market capitalization.
The 2009 results reflect our continuing efforts to execute our
growth strategy in the retail market channel, where revenues
increased 12.3% to $24.9 million for the year ended 2009.
This trend of increased revenue may be slowed or eroded by
delays in the execution of our new store expansion strategy and
interim declines in consumer demand at our retail stores
implicated by a slow or non-existent recovery from the recent
global financial and credit crisis. We respond to fluctuations
in revenues primarily by delaying the opening of new stores,
adjusting marketing efforts and operations to support our retail
stores and manage costs, as well as continuing to focus on our
proprietary store optimization modeling to determine the rate
and location of new store openings. Our direct market channel
revenues decreased 8.1%, to $51.3 million for the year
ended December 31, 2009, due to a combination of factors,
including lower unit volumes attributable to the significant
consumer spending slowdown in the overall economy and fewer
catalogs mailed. We respond to fluctuations in our direct
customers response by adjusting the quantities of catalogs
mailed and other marketing and customer-related strategies and
tactics in order to maximize revenues and manage costs. The
reversal of these trends of decreased direct revenue and delays
in our new store growth plan is dependent upon the response of
our customers to these market conditions.
In this time of economic uncertainty, we are unable to predict
economic trends, but we continue to monitor the situation as it
relates to our operations, including new store openings and
capital spending.
Revenues
We market and sell 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 2009, approximately 67.4% of our revenues generated by our
direct market channel, and 32.6% generated by our thirteen
retail stores, which increased from the 28.4% of retail sales in
2008, due primarily gains achieved from our retail rollout plan.
All revenues are recorded net of product returns.
The Company defines our same store sales to include sales from
all stores open for a full fifteen months following a grand
opening, or conversion to a Dover branded store.
Revenues from our product sales are seasonal. In addition, our
revenues can be affected by the timing of our catalog mailings.
In 2009, 29.1% of our revenues were generated in the fourth
quarter.
Cost of
Revenues
The most significant components of our cost of revenues are
product costs, purchasing, handling and transportation costs to
obtain the products and ship them to our customers. We manage
our integrated merchandising efforts by forming positive
relationships with over 600 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 manage our freight costs.
30
Gross
Profit
Our 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
Our 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 internet advertising;
|
|
|
|
labor and related costs for order processing, and salaries and
related costs for marketing, creative and executive personnel;
|
|
|
|
labor and occupancy costs to operate our retail stores;
|
|
|
|
infrastructure costs 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;
|
|
|
|
non-cash, stock-based compensation; and
|
As our 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.
31
Results of
Operations
The following table sets forth results of operations for the
periods shown (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Revenues, net direct
|
|
$
|
51,345
|
|
|
$
|
55,843
|
|
Revenues, net retail stores
|
|
|
24,859
|
|
|
|
22,138
|
|
|
|
|
|
|
|
|
|
|
Revenues, net total
|
|
|
76,204
|
|
|
|
77,981
|
|
Cost of revenues
|
|
|
47,351
|
|
|
|
49,319
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
28,853
|
|
|
|
28,662
|
|
Selling, general and administrative expenses
|
|
|
25,702
|
|
|
|
26,299
|
|
Goodwill impairment charge(1)
|
|
|
|
|
|
|
14,267
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
3,151
|
|
|
|
(11,904
|
)
|
Interest expense, financing and other related costs, net
|
|
|
1,310
|
|
|
|
1,287
|
|
Other investment loss
|
|
|
44
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax provision
|
|
|
1,797
|
|
|
|
(13,287
|
)
|
Provision for income taxes
|
|
|
893
|
|
|
|
562
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
904
|
|
|
$
|
(13,849
|
)
|
|
|
|
|
|
|
|
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
Number of retail stores(2)
|
|
|
13
|
|
|
|
12
|
|
Capital expenditures
|
|
|
426
|
|
|
|
1,123
|
|
Cash flows (used in) provided by operating activities
|
|
|
5,634
|
|
|
|
(386
|
)
|
Cash flows (used in) investing activities
|
|
|
(269
|
)
|
|
|
(1,212
|
)
|
Cash flows(used in) provided by financing activities
|
|
|
(5,082
|
)
|
|
|
1,737
|
|
Gross profit margin
|
|
|
37.9
|
%
|
|
|
36.8
|
%
|
Adjusted EBITDA(3)
|
|
|
4,105
|
|
|
|
3,323
|
|
Adjusted EBITDA margin(3)
|
|
|
5.4
|
%
|
|
|
4.3
|
%
|
|
|
|
(1)
|
|
Includes a non-cash, non-tax
deductible goodwill impairment charge of approximately $14,267,
triggered by declines in the Companys market
capitalization.
|
|
(2)
|
|
Includes twelve Dover branded
stores and one Smith Brothers branded store; the
December 31, 2009 store count includes the Kingstown, RI
Dover-branded store opened in Q1 2009, the Branchburg, NJ Dover
branded store opened in Q2 2008 and the Alpharetta, GA Dover
branded store opened in Q4 2008.
|
|
(3)
|
|
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, non-cash goodwill impairment
charge, depreciation, amortization and other investment loss. 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.
|
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;
|
32
|
|
|
|
|
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 (loss) to Adjusted
EBITDA (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Net income (loss)
|
|
$
|
904
|
|
|
$
|
(13,849
|
)
|
Depreciation
|
|
|
769
|
|
|
|
777
|
|
Amortization of intangible assets
|
|
|
6
|
|
|
|
24
|
|
Stock-based compensation
|
|
|
179
|
|
|
|
159
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
14,267
|
|
Interest expense, financing and other related costs, net
|
|
|
1,310
|
|
|
|
1,287
|
|
Other investment loss
|
|
|
44
|
|
|
|
96
|
|
Provision for income taxes
|
|
|
893
|
|
|
|
562
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
4,105
|
|
|
$
|
3,323
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth our results of operations as a
percentage of revenues for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Revenues, net direct
|
|
|
67.4
|
%
|
|
|
71.6
|
%
|
Revenues, net retail stores
|
|
|
32.6
|
|
|
|
28.4
|
|
Revenues, net total
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of revenues
|
|
|
62.1
|
|
|
|
63.2
|
|
Gross profit
|
|
|
37.9
|
|
|
|
36.8
|
|
Selling, general and administrative expenses
|
|
|
33.7
|
|
|
|
33.7
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
18.3
|
|
Income (loss) from operations
|
|
|
4.1
|
|
|
|
(15.3
|
)
|
Interest expense, financing and other related costs, net
|
|
|
1.7
|
|
|
|
1.7
|
|
Other investment loss
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Income (loss) before income tax provision
|
|
|
2.4
|
|
|
|
(17.0
|
)
|
Provision for income taxes
|
|
|
1.2
|
|
|
|
0.7
|
|
Net income (loss)
|
|
|
1.2
|
%
|
|
|
(17.8
|
)%
|
|
|
|
(1)
|
|
Certain of these amounts may not
sum properly due to rounding.
|
33
Comparison of
Years Ended December 31, 2009 and 2008
Revenues
Our total revenues were $76.2 million for the year ended
December 31, 2009, down from $78.0 million for the
corresponding period in 2008, a decrease of $1.8 million or
2.3%. Revenues in our direct market channel were
$51.3 million, a decrease of $4.5 million, or 8.1%
from the corresponding period in 2008. Revenues in our retail
market channel increased $2.8 million, or 12.3%, to
$24.9 million. The decrease in our direct market channel
was due to lower unit volumes attributable to the continuing
consumer slowdown in the overall economy in the first three
quarters of the year and fewer catalogs mailed. The increase in
revenues from our retail market channel was due primarily to the
opening of new stores in 2008 and 2009 and resulting increases
in retail revenues. Same store sales decreased 2.3% over prior
year, attributable to the continuing economic recession in the
first three quarters.
Gross
Profit
Gross profit for the year ended December 31, 2009 increased
0.7% to $28.9 million, from $28.7 million for the
corresponding period in 2008. Gross profit, as a percentage of
revenues, for the year ended December 31, 2009 was 37.9%
compared to 36.8% for the corresponding period in 2008. The
increase in gross profit of $0.2 million was attributable
to increased revenues in our retail market channel and
variations in our overall product mix. The increase in gross
profit as a percentage of revenues was attributable to
variations in our overall product mix.
Selling, General
and Administrative
Selling, general and administrative expenses were reduced
$0.6 million for year ended December 31, 2009 to
$25.7 million compared to $26.3 million for the
corresponding period in 2008; a savings of 2.3%. As a percentage
of revenues, SG&A expenses remained constant at 33.7% for
the years ended December 31, 2009 and 2008, respectively.
Cost reductions in marketing, catalog costs and professional
fees offset planned increases in facility costs in support of
retail market channel revenue growth.
Goodwill
Impairment Charge
We test our goodwill annually for impairment, in connection with
the preparation of our financial statements. At
December 31, 2009, no test was required, as there was no
goodwill. As of December 31, 2008, we performed the initial
step of our impairment evaluation by comparing the fair market
value of our single reporting unit, as determined using market
capitalization, to its carrying value. Since the carrying value
exceeded the fair value, the second step of the impairment
evaluation was performed to calculate the value of the
impairment in accordance with GAAP. The result was a non-cash
goodwill impairment charge of $14.3 million, the entire
amount of the goodwill carrying value. This charge was recorded
with no corresponding tax benefit. The primary reason for the
goodwill impairment charge was the reduction in our market
capitalization. This is a non-cash charge which does not by
itself impact the Companys cash flow, future earning power
or ability to serve its customers.
Interest
Expense
Interest expense, including amortization of deferred financing
costs attributed to our subordinated debt and revolving credit
facility, remained constant for the years ended
December 31, 2009 and 2008 at $1.3 million.
34
Income Tax
Provision
The provision for income taxes was $0.9 million for the
year ended December 31, 2009, reflecting an effective tax
rate of 49.7%, as compared to a provision of $0.6 million
for the corresponding period in 2008. The increase of
$0.3 million was primarily attributable to the increase in
taxable income. The 2009 rate is attributable to increased state
tax rates and liabilities. The 2008 rate is attributable to the
inability to deduct, for tax purposes, the non-cash goodwill
impairment charge.
Net Income
(Loss)
The net income for the year ended December 31, 2009 was
$904,000, compared to a loss of ($13.8) million for the
corresponding period in 2008. This net income improvement was
due primarily to increased income from operations attributable
to improved gross profit and SG&A cost savings, and the
non-recurrence of the prior year impairment charge. The prior
year net loss was due entirely to the non-cash goodwill
impairment charge of $14.3 million. The resulting income
per diluted share increased to $0.17 for the year ended
December 31, 2009 as compared to loss per diluted share of
($2.68) for the corresponding period in 2008.
On a GAAP basis, the 2008 net loss was ($13.8) million
or ($2.68) per diluted share. The ($13.8) million net loss
was due primarily to the non-cash, non-deductible goodwill
impairment charge of $14.3 million in the fourth quarter.
This was a non-cash charge which did not, by itself, impact the
Companys cash flow, future earning power, or ability to
service our customers. The non-GAAP net income for 2008 was
$418,000 or $0.08 per diluted share. Non-GAAP earnings excluded
the non-cash goodwill impairment charge triggered by the decline
in the Companys market capitalization. The full year 2008
performance generated an estimated federal taxable income of
$775,000. The GAAP to non-GAAP reconciliation for fiscal 2008,
is included in the following tables, Reconciliation of
GAAP Income before Taxes to Estimated Federal Taxable
Income.
35
Below is a table for clarification showing the non-GAAP net
income and earnings per share reconciliation for fiscal 2008. We
believe that in a comparison of 2009 vs. 2008 results, these
non-GAAP measures supplement our GAAP financial information and
provide useful measures for evaluating operating results and
trends.
Reconciliation of
GAAP Measures and Non-GAAP Measures
In thousands (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Dec. 31, 2008
|
|
|
|
GAAP
|
|
|
Impairment
|
|
|
Non-GAAP
|
|
|
|
As Reported
|
|
|
Charges
|
|
|
Pro-forma Total
|
|
|
Revenues, net total
|
|
$
|
77,981
|
|
|
|
|
|
|
$
|
77,981
|
|
Cost of revenues
|
|
|
49,319
|
|
|
|
|
|
|
|
49,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
28,662
|
|
|
|
|
|
|
|
28,662
|
|
Selling, general and administrative expenses
|
|
|
26,299
|
|
|
|
|
|
|
|
26,299
|
|
Litigation settlement expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment charge
|
|
|
14,267
|
|
|
|
(14,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(11,904
|
)
|
|
|
14,267
|
|
|
|
2,363
|
|
Interest expense, financing and other related costs, net
|
|
|
1,287
|
|
|
|
|
|
|
|
1,287
|
|
Other investment loss
|
|
|
96
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax provision
|
|
|
(13,287
|
)
|
|
|
14,267
|
|
|
|
980
|
|
Provision for income taxes
|
|
|
562
|
|
|
|
|
|
|
|
562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(13,849
|
)
|
|
$
|
14,267
|
|
|
$
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.68
|
)
|
|
$
|
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(2.68
|
)
|
|
$
|
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in per share calculation
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,164,000
|
|
|
|
|
|
|
|
5,164,000
|
|
Diluted
|
|
|
5,164,000
|
|
|
|
|
|
|
|
5,266,000
|
|
Reconciliation of
GAAP Income Before Taxes to Estimated Federal Taxable
Income
(In thousands) (Unaudited)
|
|
|
|
|
|
|
Year Ended
|
|
|
|
Dec. 31, 2008
|
|
|
Loss before taxes (GAAP)
|
|
$
|
(13,287
|
)
|
Permanent differences
|
|
|
14,446
|
|
State taxes (tax)
|
|
|
(143
|
)
|
Timing differences
|
|
|
(241
|
)
|
|
|
|
|
|
Estimated federal taxable income
|
|
$
|
775
|
|
|
|
|
|
|
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 Companys management uses these
non-GAAP measures in its analysis of the Companys
performance and
36
ongoing operations. For example, the Board of Directors has a
long-standing policy to use Adjusted EBITDA (defined in
Results of Operations of Managements
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 Companys senior management and key employees. These
non-GAAP measures are referred to as
Non-GAAP Adjusted EBITDA,
Non-GAAP Net Income and
Non-GAAP Earnings Per Share, all of which
reflect adjustments for the goodwill impairment charge.
Estimated federal taxable income is the amount we report on our
federal income tax return as income on which we pay federal
taxes. The Company believes that these non-GAAP operating
measures supplement our GAAP financial information and provide
useful information to investors for evaluating the
Companys operating results, and trends that may be
affecting the Companys 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 years 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 2009, we increased our cash by
$0.3 million. In the challenging economic recession of
2009, we temporarily slowed our retail store expansion and
aggressively managed our inventories to maintain optimal in
stock positions while reducing overall inventories by
$2.0 million. The resulting strong cash flow from
operations of $5.6 million was utilized to pay down our
revolving credit facility. We plan in the future to obtain
additional financing from banks, or through public offerings or
private placements of debt or equity securities, strategic
relationships, or other arrangements. In the event we fail to
meet our financial covenants with our lenders, we may not have
access through our line of credit to sufficient working capital
to manage our fixed and variable obligations or 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 year ended
December 31, 2009 was $5.6 million compared to cash
utilized of $0.4 million for the corresponding period in
2008. The results of operations, consisting of net income of
$0.9 million as well as non-cash expenses of depreciation,
amortization, non-cash interest and other expenses, generated
$2.0 million of cash. Cash inflows consisted primarily of a
planned reductions in inventory of $2.0 million, prepaid
catalog and other current assets of $0.7 million as well as
increases in accounts payable and accrued expenses, other
current liabilities and income taxes payable of
$0.1 million and $0.8 million, respectively. Cash
utilized
37
in our operating activities for year ended December 31,
2008 was $0.4 million. The results of operations,
consisting of the net loss adjusted for the non-cash goodwill
impairment charge of $14.3 million, as well as non-cash
expenses of depreciation, amortization, non-cash interest and
other expenses, generated $1.9 million of cash. Cash
outflows consisted primarily of a planned reduction in vendor
accounts payable of $1.1 million in a challenging economic
environment. Cash of $0.6 million was also utilized for
inventory expansion for two new stores, prepaid catalogs and
other current assets of $0.3 million, as well as reductions
in accrued expenses, other current liabilities and income taxes
payable of $0.6 million, offset by decreased receivables of
$0.3 million.
Investing
Activities
Cash utilized in our investing activities was $0.3 million
for the year ended December 31, 2009 compared to
$1.2 million for the corresponding period in 2008. For the
years ended December 31, 2009 and 2008, investing
activities consisted primarily of retail store build-out and
equipment costs.
Financing
Activities
Net cash used in our financing activities was $5.1 million
for the year ended December 31, 2009. We reduced our
revolving credit facility by $5.3 million, which was offset
by the change in outstanding checks of $0.2 million and
proceeds from exercising stock options of $0.2 million for
the year ended December 31, 2009. For the year ended
December 31, 2008, net cash provided by our financing
activities was $1.7 million. We funded our operating and
investing activities with net borrowings of $2.0 million
under our revolving credit facility.
Revolving Credit
Facility
On December 11, 2007, the Company entered into a new senior
revolving credit facility with RBS Citizens Bank N.A., under
which it can borrow up to $18,000,000, including $2,000,000 for
letters of credit. Interest accrues at a variable rate based on
either prime rate or published LIBOR rates. On March 27,
2009, the Company amended the senior revolving credit facility
to adjust various covenant levels for the year the fiscal year
2009, due to the on-going impact of the economic recession. In
addition, the maximum amount to be borrowed was reduced from
$18,000,000 to $14,000,000 in 2009, through June 2010, and will
then reduce to $13,000,000 on June 30, 2010.
The credit facility expires on January 31, 2011, at which
time all advances will be immediately due and payable. As of
December 31, 2009, the revolving credit facility borrowing
limit was $14,000,000, subject to certain covenants, and the
amount outstanding under the credit facility was $3,000,000 at
the net revolver rate of 3.18% . The unused amount available was
$11,000,000. Borrowings are secured by substantially all of the
Companys assets. Under the terms of this credit facility,
the Company is subject to various covenants. At
December 31, 2009, the Company was in compliance with all
of its covenants under the credit facility.
Senior
Subordinated Notes Payable and Warrants
On December 11, 2007, the Company entered into a
subordinated loan agreement with BCA Mezzanine Fund, LP, Cephas
Capital Partners, LP, and SEED Ventures, LP (jointly, the
Subordinated Holders), which provided for the
issuance of a senior subordinated note payable, which is due in
full on December 11, 2012, for aggregate proceeds of
$5,000,000. The note is subordinated in right of payment to
existing and future senior debt, ranks equal in right of payment
with any future senior subordinated debt and is senior in right
of payment to any future subordinated debt. Interest accrues at
an annual rate of 14%, of which 12% is payable quarterly in
arrears on the fifth business day of the following month. The
remaining 2% per annum is deferrable, and if deferred, shall be
compounded annually and due in full on December 11, 2012.
As of December 31, 2009, the Company had deferred
38
$249,793 of interest. Prepayment on the principal amount due
under the note may voluntarily be made at any time, plus accrued
and unpaid interest and a prepayment fee of 3% if paid after
December 11, 2009 and prior to the third anniversary of
December 11, 2010, and 0% if paid after December 11,
2010. Under the terms of this senior subordinated credit
facility, the Company is subject to various covenants. As of
December 31, 2009, the balance of the subordinated notes
was $5.0 million, and the Company was in compliance with
all of its covenants under the credit facility. On
March 27, 2009, the Company amended the subordinated loan
agreement to adjust various covenant levels for the fiscal year
2009, due to the on-going impact of the economic recession. The
Company anticipates compliance with all original covenants for
the next four quarters.
Simultaneously with the issuance of this note, we issued
warrants to the Subordinated Holders, exercisable at any time
after December 11, 2007, for an initial 118,170 shares
of our common stock at an initial exercise price of $3.96 per
share. The number of shares to be received for the warrants,
upon exercise, was subject to change in the event of additional
equity issuances
and/or stock
splits. In September of 2009, with the prior approval of the
Board, the Company modified certain terms of the warrants and
reduced the exercise price to $2.75 per share. A charge of
$36,000 was recognized in conjunction with the warrant
modification and is included in interest expense.
Working Capital
and Capital Expenditure Needs
We believe 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. Our future capital
requirements will depend on many factors, including our rate of
revenue growth, the expansion of our marketing and sales
activities, the addition of new 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 lenders. At
December 31, 2009, the Company was in compliance with all
of its covenants under the credit facility.
Off-Balance Sheet
Arrangement
As of December 31, 2009, we had no off-balance sheet
arrangements as defined in Item 303(a)(4) of the Securities
and Exchange Commissions
Regulation S-K.
Critical
Accounting Policies and Estimates
Our 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.
We believe 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
39
critical to fully understanding and evaluating our consolidated
financial condition and results of operations.
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 Companys
warehouse. For retail sales, this occurs at the point of sale.
For the periods presented, merchandise returns have been
consistent; resulting in period-end reserves of $793,000 and
$757,000 for the years ended December 31, 2009 and 2008
respectively. We do not anticipate changes to the future trends
of our merchandise returns.
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.
Inventory
Valuation
Inventory consists of finished goods in the Companys
mail-order warehouse and retail stores. The Companys
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 $95,000 for the years ended December 31, 2009
and 2008. 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. We do not foresee
any change to this trend which currently recognizes annual
valuation charges below that of the period end reserve balances.
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. At December
31 2009, the Company recorded a liability of $30,000 for
unrecognized tax benefits, and at December 31, 2008, the
Company had no liability recorded.
40
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 income statement based on their fair
values. Refer to Note 7 for further discussion of
stock-based compensation recognized for periods presented.
Impairment of
Long-lived Assets
We review 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 discounted 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. We do not believe that any of our
long-lived assets, other than goodwill, were impaired as of
December 31, 2009 and 2008.
Goodwill is reviewed for impairment at least annually or
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the carrying amount
of a reporting unit exceeds its estimated fair value, goodwill
is evaluated for potential impairment. Management has determined
there is a single reporting unit, the Company as a whole. We
performed our annual test of impairment of goodwill as of
December 31, 2008, in connection with the preparation of
our financial statements presented in that Annual Report. We
determined that impairment of the entire recorded amount of
goodwill had occurred, as the carrying value of the reporting
unit exceeded its fair value. Accordingly, we recorded a
goodwill impairment charge of approximately $14,267,000 in the
2008 Statement of Operations, with no tax benefit.
Recent Accounting
Pronouncements
Business Combinations. In December
2007, the Financial Accounting Standards Board
(FASB) issued new guidance on business combinations.
This guidance establishes principles and requirements for how
the Company: (1) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree;
(2) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase; and
(3) determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial
effects of the business combination. The business combinations
guidance also requires acquisition-related transaction and
restructuring costs to be expensed rather than treated as part
of the cost of the acquisition. This guidance applies
prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company
adopted the business combination guidance on January 1,
2009 and will only impact the Company if any acquisitions are
completed subsequently.
In April 2009, the FASB issued guidance relating to accounting
for assets acquired and liabilities assumed in a business
combination that arise from contingencies. This pronouncement
requires that assets acquired and liabilities assumed in a
business combination that arise from contingencies be recognized
at fair value, as determined in accordance with the fair value
measurements guidance, if the acquisition-date fair value can be
reasonably estimated. If the acquisition-date fair value of an
asset or liability cannot be reasonably estimated, the asset or
liability would be measured at the amount that would be
recognized in accordance with the accounting guidance for
contingencies. This pronouncement became effective for the
Company as of January 1, 2009, and the provisions of the
pronouncement are applied prospectively to business combinations
with an acquisition date on or after the date the guidance
became effective. The adoption of this
41
pronouncement did not have a material impact on the
Companys financial position or results of operations.
Consolidation Noncontrolling
Interests. In December 2007, the FASB issued
guidance on noncontrolling interests which establishes
accounting and reporting standards for the noncontrolling
interest in a subsidiary (formerly known as minority interest)
and for the deconsolidation of a subsidiary. This guidance
clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements.
This guidance also requires presentation on the face of the
consolidated statement of income of the amounts of consolidated
net income attributable to the parent and to the noncontrolling
interest, resulting in an increase to consolidated net income.
This guidance requires expanded disclosures in the consolidated
financial statements that clearly identify and distinguish
between the interests of the parents owners and the
interests of the noncontrolling owners of a subsidiary. This
guidance is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after
December 15, 2008. The Company adopted this statement as of
January 1, 2009, and it had no impact on the Companys
financial conditions, results of operations or cash flows.
Derivatives and Hedging. In March 2008,
the FASB issued new disclosure requirements for derivative
instruments and hedging activities. The new disclosure
requirements will provide users of financial statements with an
enhanced understanding of: (1) how and why an entity uses
derivative instruments; (2) how derivative instruments and
related hedged items are accounted for; and (3) how
derivative instruments and related hedged items affect an
entitys financial position, financial performance and cash
flows. This guidance requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on
derivative instruments and disclosures about credit-risk-related
contingent features in derivative instruments. This statement
applies to all entities and all derivative instruments. This
guidance is effective for financial statements issued for fiscal
years and interim periods beginning after November 15,
2008. The Company adopted this guidance on January 1, 2009
and it did not impact the Companys results of operations,
cash flows or financial position.
In June 2008, the FASB ratified the consensus reached by the
Emerging Issues Task Force (EITF) which clarifies the
determination of whether an instrument (or an embedded feature)
is indexed to an entitys own stock, which would qualify as
a scope exception to derivative accounting. The Company adopted
this guidance as of January 1, 2009 and it did not have a
material impact on the Companys consolidated financial
statements.
Intangible Assets. In April 2008, the
FASB issued guidance on determining the useful life of
intangible assets. The intent of the guidance is to improve the
consistency between the useful life of a recognized intangible
asset and the period of expected cash flows used to measure the
fair value of the asset. This guidance requires an entity to
disclose information for a recognized intangible asset that
enables users of the financial statements to assess the extent
to which the expected future cash flows associated with the
asset are affected by the entitys intent
and/or
ability to renew or extend the arrangement. This guidance is
effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. The Company adopted this guidance on
January 1, 2009. The adoption of this guidance did not have
a material impact on the Companys financial position or
results of operations.
Subsequent Events. In May 2009, the
FASB issued guidance on subsequent events which establishes
general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial
statements are issued or are available to be issued. This
guidance is based on the same principles as currently exist in
auditing standards and was issued by the FASB to include
accounting guidance that originated as auditing standards into
the body of authoritative literature issued by the FASB. The
standard addresses the period after the balance sheet date
during which management of a reporting entity should evaluate
events or transactions that may occur for
42
potential recognition or disclosure in the financial statements,
the circumstances under which an entity should recognize events
or transactions occurring after the balance sheet date in its
financial statements and the disclosures that an entity should
make about events or transactions that occurred after the
balance sheet date. The Company adopted this guidance during the
quarterly period ended June 30, 2009.
Consolidation Variable Interest
Entities. In June 2009, the FASB issued a
standard which changes the way entities account for special
purpose entities. This guidance changes how a reporting entity
determines when an entity that is insufficiently capitalized or
is not controlled through voting (or similar rights) should be
consolidated. The determination of whether a reporting entity is
required to consolidate another entity is based on, among other
things, the other entitys purpose and design and the
reporting entitys ability to direct the activities of the
other entity that most significantly impact the other
entitys economic performance.
The pending content requires a number of new disclosures. This
guidance is effective at the start of a reporting entitys
first fiscal year beginning after November 15, 2009, or
January 1, 2010, for the Company, and is not expected to
have a significant impact on the Companys consolidated
financial statements. Early application is prohibited.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk.
|
Foreign Currency
Risk
Nearly all of our 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
We believe the effects of inflation, if any, on our results of
operations and financial condition have not been material in
recent years.
Interest Rate
Sensitivity
We had cash and cash equivalents totaling $0.7 million at
December 31, 2009. The unrestricted cash and cash
equivalents are 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,
2009, all of our investments were held in money market funds and
certificates of deposit.
Our exposure to market risk also relates to the increase or
decrease in the amount of interest expense we must pay on our
outstanding debt instruments, primarily certain borrowings under
our revolving credit facility. The advances under this revolving
credit facility bear a variable rate of interest determined as a
function of the prime rate and the published LIBOR rate at the
time of the borrowing. If interest rates were to increase by one
percent, the additional interest expense as of December 31,
2009 would be approximately $30,000 annually. At
December 31, 2009, $3.0 million was outstanding under
our revolving credit facility.
43
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
We have 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
44
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Dover Saddlery, Inc.
We have audited the accompanying consolidated balance sheets of
Dover Saddlery, Inc. and subsidiaries (the Company) as of
December 31, 2009 and 2008 and the related consolidated
statements of operations, stockholders equity and
comprehensive income (loss) and cash flows for the years then
ended. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
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 the
Companys internal control over financial reporting. An
audit includes 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 Companys
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. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
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
consolidated financial position of Dover Saddlery, Inc. and
subsidiaries at December 31, 2009 and 2008, and the
consolidated results of their operations and their cash flows
for the years then ended, in conformity with accounting
principles generally accepted in the United States.
/s/ Caturano and
Company, P.C.
Boston, Massachusetts
March 22, 2010
45
DOVER SADDLERY,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
731,880
|
|
|
$
|
448,213
|
|
Accounts receivable
|
|
|
827,231
|
|
|
|
833,368
|
|
Inventory
|
|
|
15,300,982
|
|
|
|
17,329,883
|
|
Prepaid catalog costs
|
|
|
1,163,934
|
|
|
|
1,673,375
|
|
Prepaid expenses and other current assets
|
|
|
780,424
|
|
|
|
996,737
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
18,804,451
|
|
|
|
21,281,576
|
|
Furniture and fixtures
|
|
|
1,198,906
|
|
|
|
1,130,708
|
|
Office and other equipment
|
|
|
2,024,384
|
|
|
|
1,953,374
|
|
Leasehold improvements
|
|
|
4,849,764
|
|
|
|
4,454,270
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
8,073,054
|
|
|
|
7,538,352
|
|
Less accumulated depreciation and amortization
|
|
|
(4,707,743
|
)
|
|
|
(3,939,441
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
3,365,311
|
|
|
|
3,598,911
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
708,600
|
|
|
|
582,900
|
|
Intangibles and other assets, net
|
|
|
684,051
|
|
|
|
988,867
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
1,392,651
|
|
|
|
1,571,767
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
23,562,413
|
|
|
$
|
26,452,254
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of capital lease obligation and outstanding
checks
|
|
$
|
676,398
|
|
|
$
|
480,674
|
|
Accounts payable
|
|
|
2,305,157
|
|
|
|
2,168,232
|
|
Accrued expenses and other current liabilities
|
|
|
4,083,341
|
|
|
|
3,639,639
|
|
Income taxes payable
|
|
|
350,250
|
|
|
|
|
|
Deferred income taxes
|
|
|
21,600
|
|
|
|
212,200
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
7,436,746
|
|
|
|
6,500,745
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Revolving line of credit
|
|
|
3,000,000
|
|
|
|
8,300,000
|
|
Subordinated notes payable, net
|
|
|
5,090,927
|
|
|
|
4,906,571
|
|
Capital lease obligation, net of current portion
|
|
|
131,983
|
|
|
|
125,420
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
8,222,910
|
|
|
|
13,331,991
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common Stock, par value $0.0001 per share;
15,000,000 shares authorized; issued 5,263,975 and
5,187,038 as of December 31, 2009 and 2008
|
|
|
526
|
|
|
|
519
|
|
Additional paid in capital
|
|
|
45,180,863
|
|
|
|
44,801,241
|
|
Treasury stock, 795,865 shares at cost
|
|
|
(6,081,986
|
)
|
|
|
(6,081,986
|
)
|
Accumulated deficit
|
|
|
(31,196,646
|
)
|
|
|
(32,100,256
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
7,902,757
|
|
|
|
6,619,518
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
23,562,413
|
|
|
$
|
26,452,254
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
46
DOVER SADDLERY,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Revenues, net
|
|
$
|
76,203,716
|
|
|
$
|
77,981,025
|
|
Cost of revenues
|
|
|
47,350,698
|
|
|
|
49,319,477
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
28,853,018
|
|
|
|
28,661,548
|
|
Selling, general, and administrative
|
|
|
25,701,879
|
|
|
|
26,299,145
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
14,266,525
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
3,151,139
|
|
|
|
(11,904,122
|
)
|
Interest expense, financing and other related costs, net
|
|
|
1,310,385
|
|
|
|
1,287,682
|
|
Other investment loss
|
|
|
44,374
|
|
|
|
95,518
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax provision
|
|
|
1,796,380
|
|
|
|
(13,287,322
|
)
|
Provision for income taxes
|
|
|
892,770
|
|
|
|
561,900
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
903,610
|
|
|
$
|
(13,849,222
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0 17
|
|
|
$
|
(2.68
|
)
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.17
|
|
|
$
|
(2.68
|
)
|
|
|
|
|
|
|
|
|
|
Number of shares used in per share calculation
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,190,000
|
|
|
|
5,164,000
|
|
Diluted
|
|
|
5,248,000
|
|
|
|
5,164,000
|
|
See accompanying notes.
47
DOVER SADDLERY,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
Treasury Stock
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Par
|
|
|
Additional
|
|
|
Number of
|
|
|
Redemption
|
|
|
(Accumulated
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Paid in Capital
|
|
|
Shares
|
|
|
Value
|
|
|
Deficit)
|
|
|
Total
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
5,105,318
|
|
|
$
|
511
|
|
|
$
|
44,262,106
|
|
|
|
795,865
|
|
|
$
|
(6,081,986
|
)
|
|
$
|
(18,251,034
|
)
|
|
$
|
19,929,597
|
|
|
|
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
159,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159,143
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,849,222
|
)
|
|
|
(13,849,222
|
)
|
|
|
|
|
Hobby Horse Investment
|
|
|
81,720
|
|
|
|
8
|
|
|
|
379,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
380,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
5,187,038
|
|
|
$
|
519
|
|
|
$
|
44,801,241
|
|
|
|
795,865
|
|
|
$
|
(6,081,986
|
)
|
|
$
|
(32,100,256
|
)
|
|
$
|
6,619,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
178,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178,983
|
|
|
|
|
|
Warrant Modification
|
|
|
|
|
|
|
|
|
|
|
36,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,000
|
|
|
|
|
|
Issuance of Common Stock Upon Exercise of Stock Options
|
|
|
76,937
|
|
|
|
7
|
|
|
|
164,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164,646
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
903,610
|
|
|
|
903,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
5,263,975
|
|
|
$
|
526
|
|
|
$
|
45,180,863
|
|
|
|
795,865
|
|
|
$
|
(6,081,986
|
)
|
|
$
|
(31,196,646
|
)
|
|
$
|
7,902,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
48
DOVER SADDLERY,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
903,610
|
|
|
$
|
(13,849,222
|
)
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
774,554
|
|
|
|
801,625
|
|
|
|
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
14,266,525
|
|
|
|
|
|
Deferred income taxes
|
|
|
(316,300
|
)
|
|
|
174,000
|
|
|
|
|
|
Loss from investment in affiliate
|
|
|
44,374
|
|
|
|
95,518
|
|
|
|
|
|
Stock-based compensation
|
|
|
178,983
|
|
|
|
159,143
|
|
|
|
|
|
Non-cash interest expense
|
|
|
357,068
|
|
|
|
270,024
|
|
|
|
|
|
Changes in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
6,137
|
|
|
|
335,936
|
|
|
|
|
|
Inventory
|
|
|
2,028,901
|
|
|
|
(561,153
|
)
|
|
|
|
|
Prepaid catalog costs and other current assets
|
|
|
725,754
|
|
|
|
(291,669
|
)
|
|
|
|
|
Accounts payable
|
|
|
136,925
|
|
|
|
(1,145,583
|
)
|
|
|
|
|
Accrued expenses, other current liabilities and income taxes
payable
|
|
|
793,952
|
|
|
|
(640,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
5,633,958
|
|
|
|
(385,797
|
)
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(426,123
|
)
|
|
|
(1,123,236
|
)
|
|
|
|
|
Fees paid in connection with investment in affiliate
|
|
|
|
|
|
|
(33,300
|
)
|
|
|
|
|
Change in other assets
|
|
|
157,478
|
|
|
|
(55,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
(268,645
|
)
|
|
|
(1,212,418
|
)
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving line of credit
|
|
|
6,300,000
|
|
|
|
12,829,000
|
|
|
|
|
|
Payments under revolving line of credit
|
|
|
(11,600,000
|
)
|
|
|
(10,829,000
|
)
|
|
|
|
|
Payment of commitment fee
|
|
|
(40,000
|
)
|
|
|
|
|
|
|
|
|
Change in outstanding checks
|
|
|
215,469
|
|
|
|
(117,316
|
)
|
|
|
|
|
Payments on capital leases
|
|
|
(121,761
|
)
|
|
|
(145,418
|
)
|
|
|
|
|
Cash proceeds from exercise of stock options
|
|
|
164,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(5,081,646
|
)
|
|
|
1,737,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
283,667
|
|
|
$
|
139,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
$
|
448,213
|
|
|
$
|
309,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
731,880
|
|
|
$
|
448,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
953,615
|
|
|
$
|
1,018,800
|
|
|
|
|
|
Income taxes
|
|
$
|
791,178
|
|
|
$
|
1,023,415
|
|
|
|
|
|
Supplemental disclosure of non-cash financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with investment in
affiliate
|
|
$
|
|
|
|
$
|
380,000
|
|
|
|
|
|
Equipment acquired under capital leases
|
|
$
|
108,579
|
|
|
$
|
99,969
|
|
|
|
|
|
See accompanying notes.
49
DOVER SADDLERY,
INC. AND SUBSIDIARIES
|
|
1.
|
Operations and
Organization
|
Dover Saddlery, Inc., a Delaware corporation (the
Company), is a leading specialty retailer and the
largest direct marketer of equestrian products in the United
States. The Company sells products through a multi-market
channel strategy, including direct and retail, with stores
located in Massachusetts, New Hampshire, Delaware, Texas,
Virginia, Maryland, New Jersey, Georgia and Rhode Island. The
Company provides a complete line of products, as well as
specially developed private label offerings from its direct
marketing headquarters, warehouse, and call center facility in
Littleton, Massachusetts.
The accompanying consolidated financial statements comprise
those of the Company and its wholly owned subsidiaries, Dover
Saddlery, Inc., a Massachusetts corporation, Smith Brothers,
Inc., a Texas corporation, Dover Saddlery Retail, Inc., a
Massachusetts corporation, Old Dominion Enterprises, Inc., a
Virginia corporation, and Dover Saddlery Direct, Inc., a
Massachusetts corporation. All inter-company accounts and
transactions have been eliminated in consolidation.
|
|
2.
|
Summary of
Significant Accounting Policies
|
The accompanying financial statements reflect the application of
certain accounting policies described in this note and elsewhere
in the accompanying notes to financial statements.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Segment
Information
Operating segments are identified as components of an enterprise
about which separate discrete financial information is available
for evaluation by the chief operating decision-maker, or
decision-making group, in making decisions on how to allocate
resources and assess performance. The Company views its
operations and manages its business as one operating segment
utilizing a multi-channel distribution strategy.
The following table presents certain selected operating data
from both the direct and retail market channels (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Revenues, net direct
|
|
$
|
51,345
|
|
|
$
|
55,843
|
|
Revenues, net retail
|
|
|
24,859
|
|
|
|
22,138
|
|
|
|
|
|
|
|
|
|
|
Revenues, net Total
|
|
$
|
76,204
|
|
|
$
|
77,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Recognition
Revenues from merchandise sales, including shipping and
handling, are recognized when payment is reasonably assured, the
product is shipped and title and risk of loss have transferred
to
50
DOVER SADDLERY,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the customer. For direct sales, this occurs when product is
delivered to the common carrier at the Companys warehouse.
For retail sales, this occurs at the point of sale. Revenues are
recorded net of local sales tax collected. At the time of
recognition, the Company provides a reserve for projected
merchandise returns. The reserve, which is based on prior return
experience, is recorded in accrued expenses and other current
liabilities (see Note 9).
Shipping and
Handling Costs
The Company has classified amounts billed to customers for
shipping and handling as revenue, and shipping and handling
costs as cost of revenues in the accompanying consolidated
statements of operations.
Cost of Revenues
and Selling, General and Administrative Expenses
The Companys consolidated cost of revenues primarily
consists of merchandise costs, purchasing, handling and
transportation costs to obtain the merchandise and ship it to
customers. The Companys consolidated selling, general and
administrative expenses primarily consist of selling and
marketing expenses, including amortization of deferred catalog
costs, retail occupancy cost, depreciation, amortization, and
general and administrative expenses.
Cash and Cash
Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less at the time of
purchase to be cash equivalents. Outstanding checks, net of cash
balances in a single bank account, are classified as outstanding
checks as current liabilities.
Property and
Equipment, Depreciation, and Amortization
Property and equipment are recorded at cost. Expenditures for
additions, renewals, and betterments of property are capitalized
and depreciated over the estimated useful life. Expenditures for
repairs and maintenance are charged to expense as incurred.
The Company provides for depreciation and amortization of assets
recorded, including those under capitalized leases, using the
straight-line method by charges to operations in amounts that
allocate the cost of the assets over their estimated useful
lives as follows:
|
|
|
Asset Classification
|
|
Estimated Useful Life
|
|
Office and other equipment
|
|
5 -7 years
|
Furniture and fixtures
|
|
7 years
|
Leasehold improvements
|
|
Shorter of the estimated life or lease term
|
Depreciation and amortization of leasehold improvements and
assets recorded under capital leases were approximately $768,000
and $777,000 for the years ended December 31, 2009 and
2008, respectively.
Inventory
Inventory consists of finished goods in the Companys
mail-order warehouse and retail stores. The Companys
inventories are stated at the lower of cost, with cost
determined by the
first-in,
first-out method, or net realizable value. The Company maintains
a reserve for excess and obsolete
51
DOVER SADDLERY,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
inventory. This reserve as of December 31, 2009 and 2008
was $95,000. The Company continuously monitors the salability of
its inventories to ensure adequate valuation of the related
merchandise.
Advertising
The costs of direct-response advertising materials, primarily
catalog production and distribution, are deferred. These costs
are recognized over the period of expected future revenue, which
is less than one year. Deferred costs as of December 31,
2009 and 2008 were approximately $1,164,000 and $1,673,000,
respectively. The combined marketing and advertising costs
charged to selling, general, and administrative expenses for the
years ended December 31, 2009 and 2008, were approximately
$8,172,000 and $9,458,000, respectively.
Goodwill
Goodwill is reviewed for impairment at least annually or
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the carrying amount
of a reporting unit exceeded its estimated fair value, goodwill
is evaluated for potential impairment.
Management determined, based on the relevant guidance, that
there is a single reporting unit, the Company as a whole. At
December 31, 2008, in connection with the preparation of
its annual financial statements, the Company performed its
annual test of impairment of goodwill by comparing the fair
market value of its single reporting unit to its carrying value.
The Company determined that the carrying value of the reporting
unit exceeded the fair value, thus the second step of impairment
evaluation was performed to calculate impairment. As a result, a
goodwill impairment charge of approximately $14,267,000, the
entire amount of the goodwill carrying value, was recorded in
the 2008 Consolidated Statements of Operations, with no tax
benefit. The primary reason for the impairment charge was the
reduction in the Companys market capitalization.
The following table sets forth the change in the carrying amount
of goodwill for the years ended December 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance as of December 31
|
|
$
|
|
|
|
$
|
14,267,000
|
|
Impairment charge
|
|
$
|
|
|
|
|
14,267,000
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Accounting for
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 discounted 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. The Company
does not believe any of its long-lived assets have been impaired
as of the periods presented.
52
DOVER SADDLERY,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pre-opening Store
Expenses
All non-capital costs associated with the opening of new retail
stores are expensed as incurred.
Financial
Instruments
The Companys financial instruments consist of cash and
cash equivalents, accounts receivable, accounts payable, line of
credit advances, and notes payable. The carrying value of cash
and cash equivalents, accounts receivable, and accounts payable
reflects fair value due to their short-term nature. The carrying
value of the line of credit as of December 31, 2009, is not
materially different from the fair value of the line of credit.
The carrying value of the subordinated notes payable, as of
December 31, 2009, is not materially different from the
fair value of the notes.
Concentration of
Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are principally cash equivalents
and accounts receivable. The Company places its cash and cash
equivalents in highly rated financial institutions. The Company
maintains cash and cash equivalent balances with financial
institutions that occasionally exceed federally insured limits.
The Company has not experienced any losses related to these
balances, and management believes its credit risk to be minimal.
In addition, accounts receivable consists primarily of customer
credit card transactions that are fully authorized with payment
in transit as of period end and therefore no allowance for
doubtful accounts is deemed necessary. For the periods
presented, there were no customers that comprised more than 10%
of receivables or revenues.
Comprehensive
Income (Loss)
Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other
events and circumstances from non-owner sources. Total
comprehensive income (loss) for the years ended
December 31, 2009 and 2008 equaled net income (loss) and
was approximately $904,000 and ($13,849,000), respectively.
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 bases 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.
Net Income (Loss)
Per Share
Basic net income (loss) per share is determined by dividing net
income (loss) available to common stockholders by the weighted
average common shares outstanding during the period. Diluted net
income (loss) per share is determined by dividing net income
(loss) by the dilutive weighted average common shares
outstanding. The diluted weighted average common shares
outstanding includes the potential incremental common shares
from the exercise of stock options and warrants using the
treasury stock method, if dilutive.
53
DOVER SADDLERY,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the number of shares used in the calculation
of basic and diluted net income (loss) per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Basic weighted average common shares outstanding
|
|
|
5,190,000
|
|
|
|
5,164,000
|
|
Add: Dilutive effect of assumed stock option and warrant
exercises
|
|
|
58,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average commons shares outstanding
|
|
|
5,248,000
|
|
|
|
5,164,000
|
|
|
|
|
|
|
|
|
|
|
In 2009 and 2008, approximately 573,000 and 836,000 options and
warrants to acquire common stock were excluded from the diluted
weighted average shares calculation as the effect of such
options and warrants was anti-dilutive.
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 statement of operations based on
their fair values. Refer to Note 7 for further discussion
of stock-based compensation recognized for periods presented.
Recent Accounting
Pronouncements
Business Combinations. In December
2007, the Financial Accounting Standards Board
(FASB) issued new guidance on business combinations.
This guidance establishes principles and requirements for how
the Company: (1) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree;
(2) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase; and
(3) determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial
effects of the business combination. The business combinations
guidance also requires acquisition-related transaction and
restructuring costs to be expensed rather than treated as part
of the cost of the acquisition. This guidance applies
prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company
adopted the business combination guidance on January 1,
2009, which will only impact the Company if any acquisitions are
completed subsequently.
In April 2009, the FASB issued guidance relating to accounting
for assets acquired and liabilities assumed in a business
combination that arise from contingencies. This pronouncement
requires that assets acquired and liabilities assumed in a
business combination that arise from contingencies be recognized
at fair value, as determined in accordance with the fair value
measurements guidance, if the acquisition-date fair value can be
reasonably estimated. If the acquisition-date fair value of an
asset or liability cannot be reasonably estimated, the asset or
liability would be measured at the amount that would be
recognized in accordance with the accounting guidance for
contingencies. This pronouncement became effective for the
Company as of January 1, 2009, and the provisions of the
pronouncement are applied prospectively to business combinations
with an acquisition date on or after the date the guidance
became effective. The adoption of this pronouncement did not
have a material impact on the Companys financial position
or results of operations.
54
DOVER SADDLERY,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidation Noncontrolling
Interests. In December 2007, the FASB issued
guidance on noncontrolling interests which establishes
accounting and reporting standards for the noncontrolling
interest in a subsidiary (formerly known as minority interest)
and for the deconsolidation of a subsidiary. This guidance
clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements.
This guidance also requires presentation on the face of the
consolidated statement of income of the amounts of consolidated
net income attributable to the parent and to the noncontrolling
interest, resulting in an increase to consolidated net income.
This guidance requires expanded disclosures in the consolidated
financial statements that clearly identify and distinguish
between the interests of the parents owners and the
interests of the noncontrolling owners of a subsidiary. This
guidance is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after
December 15, 2008. The Company adopted this statement as of
January 1, 2009, and it had no impact on the Companys
financial conditions, results of operations or cash flows.
Derivatives and Hedging. In March 2008,
the FASB issued new disclosure requirements for derivative
instruments and hedging activities. The new disclosure
requirements will provide users of financial statements with an
enhanced understanding of: (1) how and why an entity uses
derivative instruments; (2) how derivative instruments and
related hedged items are accounted for; and (3) how
derivative instruments and related hedged items affect an
entitys financial position, financial performance and cash
flows. This guidance requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on
derivative instruments and disclosures about credit-risk-related
contingent features in derivative instruments. This statement
applies to all entities and all derivative instruments. This
guidance is effective for financial statements issued for fiscal
years and interim periods beginning after November 15,
2008. The Company adopted this guidance on January 1, 2009
and it did not impact the Companys results of operations,
cash flows or financial position.
In June 2008, the FASB ratified the consensus reached by the
Emerging Issues Task Force (EITF) which clarifies the
determination of whether an instrument (or an embedded feature)
is indexed to an entitys own stock, which would qualify as
a scope exception to derivative accounting. The Company adopted
this guidance as of January 1, 2009 and it did not have a
material impact on the Companys consolidated financial
statements.
Intangible Assets. In April 2008, the
FASB issued guidance on determining the useful life of
intangible assets. The intent of the guidance is to improve the
consistency between the useful life of a recognized intangible
asset and the period of expected cash flows used to measure the
fair value of the asset. This guidance requires an entity to
disclose information for a recognized intangible asset that
enables users of the financial statements to assess the extent
to which the expected future cash flows associated with the
asset are affected by the entitys intent
and/or
ability to renew or extend the arrangement. This guidance is
effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. The Company adopted this guidance on
January 1, 2009. The adoption of this guidance did not have
a material impact on the Companys financial position or
results of operations.
Subsequent Events. In May 2009, the
FASB issued guidance on subsequent events which establishes
general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial
statements are issued or are available to be issued. This
guidance is based on the same principles as currently exist in
auditing standards and was issued by the FASB to include
accounting guidance that originated as auditing standards into
the body of authoritative literature issued by the FASB. The
standard addresses the period after the balance sheet date
during
55
DOVER SADDLERY,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or
disclosure in the financial statements, the circumstances under
which an entity should recognize events or transactions
occurring after the balance sheet date in its financial
statements and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet
date. The Company adopted this guidance during the quarterly
period ended June 30, 2009.
Consolidation Variable Interest
Entities. In June 2009, the FASB issued a
standard which changes the way entities account for special
purpose entities. This guidance changes how a reporting entity
determines when an entity that is insufficiently capitalized or
is not controlled through voting (or similar rights) should be
consolidated. The determination of whether a reporting entity is
required to consolidate another entity is based on, among other
things, the other entitys purpose and design and the
reporting entitys ability to direct the activities of the
other entity that most significantly impact the other
entitys economic performance.
The pending content requires a number of new disclosures. This
guidance is effective at the start of a reporting entitys
first fiscal year beginning after November 15, 2009, or
January 1, 2010, for the Company, and is not expected to
have a significant impact on the Companys consolidated
financial statements. Early application is prohibited.
Revolving Credit
Facility
The Company has secured a $14,000,000 revolving credit facility,
of which up to $2,000,000 can be in the form of letters of
credit, bears interest at the LIBOR base rate, announced from
time to time by the bank, plus an applicable margin determined
by the Companys funded debt ratio. At December 31,
2009, the interest rate was 3.18% (the LIBOR rate of 0.23%, plus
the applicable margin of 2.95%). Interest is payable monthly on
the last business day of each month. At its option, the Company
may have all or a portion of the unpaid principal under the
credit facility bear interest at various LIBOR rate, or prime
rate options.
The Company is obligated to pay commitment fees of 0.125% per
annum on the average daily, unused amount of the line of credit
during the preceding quarter. All assets of the Company
collateralize the revolving credit facility. Under the terms of
the credit facility, the Company is subject to certain covenants
including, among others, maximum funded debt ratios, operating
cash flows, current asset ratios, and capital expenditures. At
December 31, 2009, the Company was in compliance with all
of its covenants under the credit facility The revolving line of
credit is due in full in January 31, 2011.
At December 31, 2009, the Company had the ability to borrow
$14,000,000 on the revolving line of credit, subject to certain
covenants, of which $3,000,000 was outstanding, bearing interest
at the net revolver rate of 3.18%.
On March 27, 2009, the Company amended the senior revolving
credit facility to adjust various covenant levels for the fiscal
year 2009, due to the on-going impact of the economic recession.
In addition, the maximum amount to be borrowed was reduced from
$18,000,000 to $14,000,000, and further reduced to $13,000,000
as of June 30, 2010.
56
DOVER SADDLERY,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Senior
Subordinated Notes Payable and Warrants
In December 2007, the Company issued $5,000,000 in senior
subordinated notes payable. The notes are subordinated in right
of payment to existing and future senior debt, rank equal in
right of payment with any future senior subordinated debt and
are senior in right of payment to any future subordinated debt.
Interest accrues at an annual rate of 14%, of which 12% is
payable quarterly in arrears. The remaining 2% per annum is
deferrable, and if deferred, shall be compounded and due in full
along with outstanding principal balance on December 11,
2012. As of December 31, 2009 and 2008, the Company had
deferred approximately $250,000 and $120,000, respectively, of
interest payments. Prepayment on the principal amount due under
the notes may voluntarily be made at any time, plus accrued and
unpaid interest and a prepayment fee of 3% if paid after
December 11, 2009, and prior to the third anniversary of
December 11, 2010, and 0% if paid after December 11,
2010.
In connection with the issuance of the 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 an initial exercise
price of $3.96. 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 expire in December 2016. The warrants had
an no intrinsic value, and remained outstanding as of
December 31, 2009. The warrants were estimated to have a
fair value of $272,000, which has been reflected as a discount
of the carrying value. The discount is amortized through
interest expense over the life of the notes. The warrants were
valued using a Black-Scholes calculation with a risk free
interest rate of 4.3%, an expected life of 9 years (which
reflects the contractual term), a volatility of 43.4% and a
dividend yield of 0%. In September 2009, with the prior approval
of the Board, the Company modified certain terms of the warrants
and reduced the exercise price to $2.75 per share. A charge of
$36,000 was recognized in conjunction with the warrant
modification included in interest expense.
As of December 31, 2009, the net $5,091,000 subordinated
notes, on the consolidated balance sheet, reflect the $5,000,000
face value, plus approximately $250,000 in deferred interest
less the remaining unamortized net discount of approximately
$159,000. As of December 31, 2008, the net $4,907,000
subordinated notes, on the consolidated balance sheet, reflect
the $5,000,000 face value, plus approximately $120,000 in
deferred interest less the remaining unamortized net discount of
approximately $213,000.
Under the terms of the subordinated note agreements, the Company
is subject to certain covenants, including, among others,
maximum funded debt ratios, operating cash flows, current asset
ratios and capital expenditures. At December 31, 2009, the
Company was in compliance with all covenants.
Debt
Payments
The estimated aggregate principal payments under our combined
financing agreements as of December 31, 2009 for each of
the next five fiscal years are as follows:
|
|
|
|
|
|
|
Principal Debt
Payments
|
|
2009
|
|
$
|
|
|
2010
|
|
$
|
|
|
2011
|
|
$
|
3,000,000
|
|
2012
|
|
$
|
5,000,000
|
|
2013
|
|
$
|
|
|
57
DOVER SADDLERY,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Investment in
Affiliate
|
Investments are accounted for using the equity method of
accounting if the investment provides the Company the ability to
exercise significant influence, but not control, over an
investee, as generally deemed to exist if the Company has an
ownership interest in the voting stock of the Investee of
between 20% and 50%. The Company records its investment in
equity method investees meeting these characteristics as an
asset, included in Intangibles and Other Assets in the
accompanying Consolidated Balance Sheets.
Under this method, the investment, originally recorded at cost,
is adjusted to recognize the Companys share of net
earnings or loss of the affiliate as they occur, rather than as
dividends or other distributions are received, limited to the
extent of the Companys investment in, advances to, and
commitments for the investee.
On April 11, 2008, the Company acquired a significant
non-controlling interest in Hobby Horse Clothing Company, Inc.
(HH), in exchange for 81,720 shares of unregistered Dover
common stock. The Company accounts for this investment using the
equity method.
The Company acquired 40% of the common stock of HH, a privately
owned company. The total acquisition costs included $380,000 in
common stock, as well as $33,300 in professional fees. The
valuation of the Companys stock was set using an average
closing price of the Companys common stock over the days
immediately proceeding and including the acquisition date. Based
on the purchase allocation, the total acquisition cost of
$413,300 was allocated to the fair value of the Companys
share of net assets acquired, including $138,000 of intangible
assets, which represents the difference between the cost and
underlying equity in HHs net assets at the date of
acquisition.
Dovers share of HHs net investment loss for the year
ended December 31, 2009 and 2008 was $44,374 and $95,518,
respectively. This amount includes the intangible asset customer
list amortization (resulting from the purchase price allocation)
and is included in Other Investment Loss in the accompanying
Consolidated Statements of Operations. The carrying value at
December 31, 2009 and 2008 was approximately $273,000 and
$318,000, respectively. The carrying value was included in
Intangibles and Other Assets in the accompanying Consolidated
Balance Sheets.
Under certain circumstances, the Company may have the right, or
obligation, to acquire the remaining 60% of the common stock of
Hobby Horse, at fair value as contractually defined, beginning
as early as April 2010. The impact of any exercise of such
option is likely to be immaterial.
The Company leases its facilities and certain fixed assets that
may be purchased for a nominal amount on the expiration of the
leases under non-cancelable operating and capital leases that
extend through 2019. These leases, which may be renewed for
periods ranging from one to five years, include fixed rental
agreements as well as agreements with rent escalation clauses.
58
DOVER SADDLERY,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property and equipment includes the following cost and related
accumulated depreciation associated with equipment under capital
lease:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Office and equipment
|
|
|
215,598
|
|
|
|
220,732
|
|
Leasehold improvements
|
|
|
162,176
|
|
|
|
318,161
|
|
|
|
|
|
|
|
|
|
|
Total cost of leased equipment
|
|
|
377,774
|
|
|
|
538,893
|
|
Less allowances for depreciation
|
|
|
(109,261
|
)
|
|
|
(251,648
|
)
|
|
|
|
|
|
|
|
|
|
Net book value of assets under capital lease
|
|
$
|
268,513
|
|
|
$
|
287,245
|
|
|
|
|
|
|
|
|
|
|
The amortization expense for the assets recorded under capital
leases is included in depreciation expense.
Future minimum commitments as of December 31, 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
Leases
|
|
|
Leases
|
|
|
2010
|
|
$
|
103,000
|
|
|
$
|
2,245,000
|
|
2011
|
|
|
83,000
|
|
|
|
1,913,000
|
|
2012
|
|
|
57,000
|
|
|
|
1,288,000
|
|
2013
|
|
|
4,000
|
|
|
|
1,158,000
|
|
2014
|
|
|
|
|
|
|
1,134,000
|
|
Thereafter
|
|
|
|
|
|
|
2,844,000
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
247,000
|
|
|
|
10,582,000
|
|
|
|
|
|
|
|
|
|
|
Amount representing interest
|
|
|
(27,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
220,000
|
|
|
|
|
|
Less current portion
|
|
|
88,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term capital lease obligation
|
|
$
|
132,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental expense under the operating agreements included in
the accompanying consolidated statements of operations for
December 31, 2009 and 2008 was $2,320,000 and $2,049,000,
respectively.
In connection with retail locations, the Company enters into
various operating lease agreements, with escalating rental
payments. The effects of variable rent disbursements have been
expensed on a straight-line basis over the life of the lease .
As of December 31, 2009 and 2008, there was approximately
$348,000 and $233,000, respectively of deferred rent recorded in
other current liabilities.
59
DOVER SADDLERY,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A deferred tax asset or liability is recorded based on the
differences between the financial reporting and tax bases of
assets and liabilities and is measured by the enacted tax rates
expected to be in effect when these differences reverse. The
deferred income tax provision results from the net change during
the year of deferred income tax assets and liabilities. The
income tax provision is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
865,670
|
|
|
$
|
244,500
|
|
State
|
|
|
343,400
|
|
|
|
143,400
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
1,209,070
|
|
|
|
387,900
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(268,700
|
)
|
|
|
140,700
|
|
State
|
|
|
(47,600
|
)
|
|
|
33,300
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(316,300
|
)
|
|
|
174,000
|
|
|
|
|
|
|
|
|
|
|
Total provision for income tax
|
|
$
|
892,770
|
|
|
$
|
561,900
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes relate to the following temporary
differences as of:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Current deferred tax asset (liability):
|
|
|
|
|
|
|
|
|
Prepaid expenses currently deductible
|
|
$
|
(367,000
|
)
|
|
$
|
(552,500
|
)
|
Reserves not currently deductible
|
|
|
345,400
|
|
|
|
340,300
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax asset (liability)
|
|
|
(21,600
|
)
|
|
|
(212,200
|
)
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax asset
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
598,700
|
|
|
|
500,650
|
|
Other
|
|
|
109,900
|
|
|
|
82,250
|
|
|
|
|
|
|
|
|
|
|
Total non-current deferred tax asset
|
|
|
708,600
|
|
|
|
582,900
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
687,000
|
|
|
$
|
370,700
|
|
|
|
|
|
|
|
|
|
|
60
DOVER SADDLERY,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The effective income tax rate varies from the amount computed
using the statutory U.S. income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2009
|
|
2008
|
|
Federal statutory rate(benefit)
|
|
|
34.0
|
%
|
|
|
(34.0
|
)%
|
Increase in taxes resulting from state income taxes, net of
federal income tax benefit
|
|
|
10.0
|
|
|
|
0.9
|
|
Effect of nondeductible stock-based compensation
|
|
|
2.8
|
|
|
|
0.3
|
|
Adjustment of deferred income tax liability
|
|
|
2.9
|
|
|
|
0.4
|
|
Non-deductible goodwill impairment charge
|
|
|
|
|
|
|
36.6
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
49.7
|
%
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
|
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. At December
31 2009, the Company recorded a liability of $30,000 for
unrecognized tax benefits, and at December 31, 2008, the
Company had no liability recorded. Although the Company believes
it has adequately reserved for our uncertain tax positions, no
assurance can be given that the final tax outcome of these
matters will not be different. The Company adjusts these
reserves in light of changing facts and circumstances, such as
the closing of a tax audit or the refinement of an estimate. To
the extent that the final tax outcome of these matters is
different than the amounts recorded, such differences will
impact the provision for income taxes in the period in which
such determination is made. The provision for income taxes
includes the impact of reserve provisions and changes to
reserves that are considered appropriate, as well as the related
net interest.
The Company records interest and penalties related to income
taxes as a component of income tax. The Company did not
recognize any interest and penalty expense for the years ended
December 31, 2009 or 2008.
Tax years 2006 through 2009 remain subject to examination by the
IRS, and 2007 through 2009 tax years remain subject to
examination by Massachusetts, and 2006 through 2009 by various
other jurisdictions.
Preferred
Stock
The Company currently has authorized 1,000,000 shares of
Preferred Stock, none of which were issued or outstanding at
December 31, 2009 or 2008.
Stock Option
Plans
In August 2005, our Board of Directors approved the 2005 Equity
Incentive Plan, which became effective on November 17,
2005, concurrent with our public offering. The 2005 Equity
Incentive Plan provides for the grant of incentive stock options
to employees and non-qualified stock
61
DOVER SADDLERY,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
options, awards of common stock and opportunities to make direct
purchases of common and other stock to our employees and
directors.
The aggregate number of shares of our common stock that may be
issued under the 2005 Equity Incentive Plan is 623,574. The
aggregate number of shares of common stock that may be granted
in any calendar year to any one person pursuant to the 2005
Equity Incentive Plan may not exceed 50% of the aggregate number
shares of our common stock that may be issued pursuant to the
2005 Equity Incentive Plan.
The 2005 Equity Incentive Plan is administered by the
Compensation Committee of our Board of Directors, which has been
granted the discretion to determine when awards are made, which
directors or employees receive awards, whether an award will be
in the form of an incentive stock option, a nonqualified stock
option or restricted stock, the number of shares subject to each
award, vesting, and acceleration of vesting. Generally, options
granted to employees under the 2005 Equity Incentive Plan are
expected to vest over a five year period from the date of grant.
Stock options issued under the 2005 Equity Incentive Plan
generally expire within ten years or, in the case of incentive
stock options issued to 10% or greater shareholders, within five
years.
Prior to the adoption of the 2005 Plan, the Company had issued
513,981 options under the 1999 Plan, which was the maximum the
plan permitted. Under the 2005 Plan, the Company has reserved a
total of 623,574 shares of common stock for issuance under
the Plan. As of December 31, 2009, there were
9,945 shares available for future grants, and as of
December 31, 2008, 5 shares were available for future
grants.
The following table summarizes all stock option activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Beginning balance
|
|
|
836,720
|
|
|
$
|
4.79
|
|
|
|
685,007
|
|
|
$
|
5.58
|
|
Granted
|
|
|
10,500
|
|
|
|
2.01
|
|
|
|
151,713
|
|
|
|
1.24
|
|
Forfeited/Expired
|
|
|
(46,510
|
)
|
|
|
3.87
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(76,937
|
)
|
|
|
2.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
723,773
|
|
|
$
|
5.09
|
|
|
|
836,720
|
|
|
$
|
4.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
433,829
|
|
|
$
|
5.91
|
|
|
|
455,372
|
|
|
$
|
5.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Options
|
|
|
Average
|
|
|
Options
|
|
Range of Exercise
Prices
|
|
Outstanding
|
|
|
Remaining Life
|
|
|
Exercisable
|
|
|
$ 1.24 1.36
|
|
|
148,773
|
|
|
|
6.39
|
|
|
|
29,755
|
|
$ 1.56
|
|
|
49,115
|
|
|
|
2.33
|
|
|
|
49,115
|
|
$ 1.94 $2.14
|
|
|
71,529
|
|
|
|
5.64
|
|
|
|
61,029
|
|
$ 4.50 $4.95
|
|
|
159,023
|
|
|
|
7.88
|
|
|
|
63,609
|
|
$ 7.50 $8.78
|
|
|
162,529
|
|
|
|
6.85
|
|
|
|
97,517
|
|
$10.00
|
|
|
132,804
|
|
|
|
5.88
|
|
|
|
132,804
|
|
62
DOVER SADDLERY,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the intrinsic value at
December 31, 2009 and 2008, for outstanding and exercisable
options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Number of
|
|
|
Aggregate
|
|
|
Number of
|
|
|
Aggregate
|
|
|
|
Options
|
|
|
Intrinsic Value(1)
|
|
|
Options
|
|
|
Intrinsic Value(1)
|
|
|
Outstanding
|
|
|
723,773
|
|
|
$
|
(2,018,948
|
)
|
|
|
836,720
|
|
|
$
|
(2,884,453
|
)
|
Exercisable
|
|
|
433,829
|
|
|
$
|
(1,612,600
|
)
|
|
|
455,372
|
|
|
$
|
(1,863,040
|
)
|
Vested or expected to be vested
|
|
|
723,773
|
|
|
$
|
(2,018,948
|
)
|
|
|
836,720
|
|
|
$
|
(2,884,453
|
)
|
|
|
|
(1) |
|
The aggregate intrinsic value was calculated based on the
difference between the fair value of the Companys common
stock on December 31, 2009 or 2008 and the weighted average
exercise price of the underlying options. |
Stock-based
Compensation
The Company utilizes the Binomial Lattice option pricing model
to determine the fair value of stock-based compensation. The
Binomial Lattice model requires the Company to make subjective
assumptions regarding the volatility of the underlying stock.
The estimated volatility of the Companys common stock
price is based on the median of the fluctuations in the
historical price of the Companys common stock. The
Binomial Lattice model also requires a risk-free interest rate,
which is based on the U.S. Treasury yield curve in effect
at the time of the grant, and the dividend yield on the
Companys common stock, which is assumed to be zero since
the Company does not pay dividends and has no current plans to
do so in the future. Changes in these assumptions can materially
affect the estimate of fair value of stock-based compensation
and consequently, the related expense recognized on the
consolidated statement of operations.
In November 2009 and 2008, the Company granted 10,500 and
151,713 options, respectively, to acquire common stock to
Company employees and directors. Using the Binomial Lattice
Model (with assumptions disclosed below), the 2009 and 2008
awards had weighted average fair value of $1.66 and $0.83 per
option, respectively. The fair value of awarded options was
$179,000 and $159,000, net of estimated forfeitures, for the
years ended December 31, 2009 and 2008, respectively. The
fair value of these awards is recorded as stock-based
compensation expense included in general and administrative
expense over the vesting period. The remaining unrecognized
stock-based compensation expense related to unvested awards at
December 31, 2009, was approximately $448,000 to be
recognized on a straight-line basis over the employees
weighted average vesting period of 2.8 years.
The following table illustrates the assumptions used in the
Binomial-Lattice calculation used to value to the option awards
recognized in the 2009 and 2008 Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Weighted-average risk-free interest rate
|
|
|
3.0
|
%
|
|
|
3.2
|
%
|
Volatility
|
|
|
105.0
|
%
|
|
|
130.0
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Weighted-average fair value of options granted
|
|
$
|
1.66
|
|
|
$
|
0.83
|
|
63
DOVER SADDLERY,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company maintains the Dover Saddlery, Inc. 401k Profit
Sharing Plan (the 401k Plan). Employees of the Company may
participate in the 401k Plan after three months of service,
which allows employees to defer a percentage of their salary
under Section 401k of the Internal Revenue Code. The 401k
Plan also allows for the Company to make discretionary
contributions determined annually based on a percentage of the
employees compensation. No employer contributions were
made during the periods presented.
|
|
9.
|
Accrued Expenses
and Other Current Liabilities
|
Accrued expenses and other current liabilities consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Wages and bonus payable
|
|
$
|
766,368
|
|
|
$
|
141,919
|
|
Sales return reserves
|
|
|
793,000
|
|
|
|
757,000
|
|
Gift certificate and prepaid sales liabilities
|
|
|
1,248,384
|
|
|
|
1,256,537
|
|
Accrued professional fees
|
|
|
129,362
|
|
|
|
290,392
|
|
Miscellaneous accruals and other liabilities
|
|
|
1,146,227
|
|
|
|
1,193,791
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses and other current liabilities
|
|
$
|
4,083,341
|
|
|
$
|
3,639,639
|
|
|
|
|
|
|
|
|
|
|
A roll-forward of the Companys sales return reserve is as
follows:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
757,000
|
|
|
$
|
822,000
|
|
Provision
|
|
|
10,963,855
|
|
|
|
12,282,347
|
|
Returns
|
|
|
(10,927,855
|
)
|
|
|
(12,347,347
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
793,000
|
|
|
$
|
757,000
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Intangibles and
Other Assets
|
Intangibles and other assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred financing fees
|
|
$
|
396,506
|
|
|
$
|
356,506
|
|
Purchased catalog and related assets
|
|
|
819,433
|
|
|
|
819,433
|
|
Lease acquisition and other misc. assets
|
|
|
239,780
|
|
|
|
397,258
|
|
Investment in affiliate
|
|
|
273,408
|
|
|
|
317,782
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
1,729,127
|
|
|
|
1,890,979
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Deferred financing fees
|
|
|
(237,086
|
)
|
|
|
(100,374
|
)
|
Purchased catalog and related assets
|
|
|
(807,990
|
)
|
|
|
(801,738
|
)
|
|
|
|
|
|
|
|
|
|
Total accumulated amortization
|
|
|
(1,045,076
|
)
|
|
|
(902,112
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
684,051
|
|
|
$
|
988,867
|
|
|
|
|
|
|
|
|
|
|
Deferred financing costs are amortized on a straight-line basis
over the shorter of the contractual or estimated life of the
related debt. In connection with the debt refinance discussed in
Note 3, the Company recognized a portion of unamortized
deferred financing costs associated with
64
DOVER SADDLERY,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the modification of facilities. Purchased catalog and related
assets are amortized on a straight-line basis over the estimated
useful lives of the underlying assets, extending through 2012.
Amortization expense for the Companys purchased catalog
and related assets for the years ended December 31, 2009
and 2008 was approximately $6,000 and $24,000, respectively.
The estimated aggregate of purchased catalog and deferred
financing costs for each of the next five years is as follows:
|
|
|
|
|
Years Ended:
|
|
|
|
|
December 31, 2010
|
|
$
|
97,000
|
|
December 31, 2011
|
|
$
|
40,000
|
|
December 31, 2012
|
|
$
|
34,000
|
|
December 31, 2013
|
|
$
|
|
|
December 31, 2014
|
|
$
|
|
|
Thereafter
|
|
$
|
|
|
|
|
11.
|
Related Party
Transactions
|
On October 26, 2007, the disinterested members of the Audit
Committee of the Board of Directors approved a $5.0 million
subordinated debt financing facility as part of a plan to
refinance the Companys current subordinated debt with
Patriot Capital. The new
sub-debt
facility was led by BCA Mezzanine Fund, L.P. (BCA), which
participated at $2.0 million (in which Company Board member
Gregory Mulligan holds a management position and indirect
economic interest). The subordinated loans were consummated as
of December 11, 2007. Except as noted above with respect to
Mr. Mulligan, there is no relationship, arrangement or
understanding between the Company and any of the Subordinated
Holders or any of their affiliates, other than in respect of the
loan agreement establishing and setting forth the terms and
conditions of this subordinated loan agreement. In 2009 and
2008, the Company made interest payments to BCA of approximately
$600,000 and $492,000, respectively.
In October of 2004, the Company entered into a lease agreement
with a minority stockholder. The agreement, which relates to the
Plaistow, NH retail store, is a five year lease with options to
extend for an additional fifteen years. For the year ended
December 31, 2009 the Company expensed approximately
$196,000 in connection with the lease. For the year ended
December 31, 2008, the company expensed approximately
$187,000 in connection with the lease. In addition, a related
deposit of $18,750 is recorded as prepaid expenses and other
current assets as of December 31, 2009 and 2008.
In order to expedite the efficient build-out of leasehold
improvements in its new retail stores, the Company utilizes the
services of a real estate development company owned by a
non-executive Company employee and minority stockholder to
source construction services and retail fixtures. Total payments
for the year ended December 31, 2009, consisting primarily
of reimbursements for materials and outside labor, for the
fit-up of
one store were approximately $104,000. Reimbursements for the
year ended December 31, 2008 were approximately $340,000.
65
DOVER SADDLERY,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
From time to time, the Company is exposed to litigation relating
to our products and operations. Except as described below, 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 the Companys financial
condition or results of operations.
The Company had been named as a defendant in litigation brought
by one of its customers against the manufacturer of a riding
helmet for injuries sustained in an equestrian accident. To the
best of the Companys knowledge, the product was designed
and manufactured by the vendor to industry standards. During
2009, the claim against Dover was settled and fully covered by
the Companys insurance.
|
|
13.
|
Quarterly
Financial Data (unaudited)
|
Not applicable to Smaller Reporting Company.
66
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures.
|
Not applicable to Smaller Reporting Company.
|
|
Item 9A(T).
|
Controls
and Procedures.
|
Our management has responsibility for establishing and
maintaining adequate internal control over financial reporting
for the Company.
With the participation of our chief executive officer and chief
financial officer, we evaluated the effectiveness of our
disclosure controls and procedures as of December 31, 2009.
The term disclosure controls and procedures, as
defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended, or the
Exchange Act, means controls and other procedures of a company
that are designed to ensure that information required to be
disclosed by a company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SECs
rules and forms. Disclosure controls and procedures include
controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it
files or submits under the Exchange Act is accumulated and
communicated to the companys management, including its
principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required
disclosure.
Management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives and
management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and
procedures as of December 31, 2009, our chief executive
officer and chief financial officer concluded that, as of such
date, our disclosure controls and procedures were effective at
the reasonable assurance level.
With the participation of our chief executive officer and chief
financial officer, we also evaluated the effectiveness of our
internal controls over financial reporting (as defined in
§ 240.13a 15(f) or
§ 240.15d 15(f) under the Securities
Exchange Act of 1934, as amended) as of December 31, 2009
against the control framework for internal controls specified by
The Internal Control Integrated Framework
(1992), created by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO), as supplemented by
(i) the guidance of the U.S. Securities and Exchange
Commission (SEC) in SEC Interpretive Release
No. 34-55929
(June 27, 2007), and (ii) COSOs Internal Control
over Financial Reporting Guidance for
Smaller Public Companies (2006). Based on the foregoing
evaluation, management concluded that the Companys
internal controls over financial reporting were effective as of
December 31, 2009 to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
the Companys financial statements for external purposes in
accordance with generally accepted accounting principles.
No change in our internal control over financial reporting
occurred during the fourth fiscal quarter of the year ended
December 31, 2009 that has materially affected, or is
reasonably likely to materially affect, the Companys
internal control over financial reporting.
This annual report does not include an attestation report of the
Companys registered public accounting firm regarding
internal control over financial reporting. Managements
report was not subject to attestation by the Companys
registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the Company
to provide only managements report in this Annual Report.
67
The report in this Item 9A(T) shall be deemed to furnished
to the Securities and Exchange Commission, and shall not be
deemed to be filed for purposes of Section 18
of the Securities Exchange Act of 1934, as amended.
|
|
Item 9B.
|
Other
Information.
|
Under certain circumstances, the Company may have the right, or
obligation, to acquire the remaining 60% of the common stock of
Hobby Horse, at fair value as contractually defined, beginning
as early as April 2010. The impact of any exercise of such
option is likely to be immaterial.
68
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
The information set forth under the captions Directors,
Executive Officers and Corporate Governance,
Section 16(a) Beneficial Ownership Reporting
Compliance and Code of Ethics appearing in our
definitive Proxy Statement to be delivered to stockholders in
connection with the Annual Meeting of Stockholders to be held on
May 5, 2010, which will be filed with the Securities and
Exchange Commission no later than 120 days after
December 31, 2009, is incorporated herein by reference.
|
|
Item 11.
|
Executive
Compensation.
|
The information set forth under the caption Remuneration
of Executive Officers and Directors appearing in our
definitive Proxy Statement to be delivered to stockholders in
connection with the Annual Meeting of Stockholders to be held on
May 5, 2010, which will be filed with the Securities and
Exchange Commission no later than 120 days after
December 31, 2009, is incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
The information set forth under the captions Security
Ownership of Certain Beneficial Owners and Management and
Equity Compensation Plans appearing in our
definitive Proxy Statement to be delivered to stockholders in
connection with the Annual Meeting of Stockholders to be held on
May 5, 2010, which will be filed with the Securities and
Exchange Commission no later than 120 days after
December 31, 2009, is incorporated herein by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
The information set forth under the captions Certain
Relationships and Related Transactions and Director
Independence, appearing in our definitive Proxy Statement
to be delivered to stockholders in connection with the Annual
Meeting of Stockholders to be held on May 5, 2010, which
will be filed with the Securities and Exchange Commission no
later than 120 days after December 31, 2009, is
incorporated herein by reference.
|
|
Item 14.
|
Principal
Accounting Fees and Services.
|
The information set forth under the captions Principal
Accounting Fees and Services appearing in our definitive
Proxy Statement to be delivered to stockholders in connection
with the Annual Meeting of Stockholders to be held on
May 5, 2010, which will be filed with the Securities and
Exchange Commission no later than 120 days after
December 31, 2009, is incorporated herein by reference.
69
Part IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) Documents filed as part of this Annual Report on
Form 10-K
are as follows:
1. Financial Statements:
See listing of financial statements included as part of this
Form 10-K
in Item 8 of Part II.
2. Financial Statement Schedules:
The information required by this Item has been included in the
Financial Statements and related notes as part of this
Form 10-K
in Item 8 of Part II above.
3. Exhibits:
Exhibit List
Set forth below is list of exhibits submitted with this
Form 10-K
as filed or furnished with the SEC:
|
|
|
|
|
Ex-23.5 - Consent of Caturano and Company, P.C.
|
|
|
|
|
Ex-31.1 - Certification of Principal Executive Officer of
Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
|
|
|
|
|
Ex-31.2 - Certification of Principal Financial Officer of
Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
|
|
|
|
|
Ex-32.1 - Certification by Chief Executive Officer and Chief
Financial Officer of Periodic Report Pursuant to 18 U.S.C.
Section 1350
|
|
|
|
|
See the Exhibit Index immediately following the signature
page of this Annual Report on Form
10-K for a
complete index of exhibits, including those submitted with this
Form 10-K
as filed or furnished, together with those filed or furnished
with the SEC incorporated by reference to other filings.
70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dover Saddlery,
Inc.
Dated March 31, 2010
President, Chief Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Stephen
L. Day
Stephen
L. Day
|
|
President, Chief Executive Officer and Director
(principal executive officer)
|
|
March 31, 2010
|
|
|
|
|
|
/s/ Jonathan
A. R. Grylls
Jonathan
A. R. Grylls
|
|
Chief Operating Officer and Director
|
|
March 31, 2010
|
|
|
|
|
|
/s/ Michael
W. Bruns
Michael
W. Bruns
|
|
Chief Financial Officer
(principal accounting and financial officer)
|
|
March 31, 2010
|
|
|
|
|
|
/s/ David
J. Powers
David
J. Powers
|
|
Director
|
|
March 31, 2010
|
|
|
|
|
|
/s/ James
F. Powers
James
F. Powers
|
|
Director
|
|
March 31, 2010
|
|
|
|
|
|
/s/ Gregory
F. Mulligan
Gregory
F. Mulligan
|
|
Director
|
|
March 31, 2010
|
|
|
|
|
|
/s/ David
R. Pearce
David
R. Pearce
|
|
Director
|
|
March 31, 2010
|
|
|
|
|
|
/s/ John
W. Mitchell
John
W. Mitchell
|
|
Director
|
|
March 31, 2010
|
71
Exhibit Index
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
|
Number
|
|
Description
|
|
Form
|
|
Date
|
|
1.1
|
|
Form of Underwriting Agreement
|
|
Registration Statement on Form S-1
(File No. 333-127888), as Exhibit 1.1
|
|
November 16, 2005
|
3.1
|
|
Amended and Restated Certificate of Incorporation of the Company
|
|
Registration Statement on Form S-1
(File No. 333-127888), as Exhibit 3.1
|
|
August 26, 2005
|
3.2
|
|
Certificate of Amendment to Certificate of Incorporation of the
Company
|
|
Registration Statement on Form S-1
(File No. 333-127888), as Exhibit 3.2
|
|
October 5, 2005
|
3.3
|
|
Second Amended and Restated Certificate of Incorporation of the
Company to be filed upon completion of this offering
|
|
Registration Statement on Form S-1
(File No. 333-127888), as Exhibit 3.3
|
|
October 25, 2005
|
3.4
|
|
By-laws of the Company
|
|
Registration Statement on Form S-1
(File No. 333-127888), as Exhibit 3.4
|
|
August 26, 2005
|
3.5
|
|
Amended and Restated By-laws of the Company to be effective upon
completion of this offering
|
|
Registration Statement on Form S-1
(File No. 333-127888), as Exhibit 3.5
|
|
October 5, 2005
|
3.6
|
|
Amendment to By-Laws of the Company
|
|
Form 8-K Current Report; amends Exhibit 3.5
|
|
December 28, 2007
|
3.7
|
|
Amended and Restated By-Laws of the Company
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2008; amends and restates Exhibits 3.4 and 3.5
|
|
August 13, 2008
|
4.1
|
|
Shareholders Agreement, dated as of September 17, 1998, by
and among the Company, Stephen L. Day, Jonathan A.R. Grylls,
David Post, Donald Motsenbocker, Thomas Gaines, David J. Powers,
James F. Powers, and Michele R. Powers
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 4.2
|
|
August 26, 2005
|
4.2
|
|
First Amendment to Shareholders Agreement, dated as of
August 29, 2003, by and among the Company, Stephen L. Day,
Jonathan A.R. Grylls, David Post, Thomas Gaines, David J.
Powers, James F. Powers, and Michele R. Powers
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 4.3
|
|
August 26, 2005
|
4.3
|
|
Second Amendment to Shareholders Agreement, dated as of
August 25, 2005, by and among a majority in interest of the
Purchasers (as defined therein) and a majority in interest of
the Sellers (as defined therein)
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 4.3
|
|
October 5, 2005
|
4.4
|
|
Instrument of accession, dated as of September 16, 2005,
signed by Citizens Ventures, Inc. and accepted by the Company,
to that certain Shareholders Agreement, dated as of
September 17, 1998, by and among the Company and the
Shareholders referenced therein, as amended
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 4.4
|
|
October 5, 2005
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
|
Number
|
|
Description
|
|
Form
|
|
Date
|
|
4.5
|
|
Form of Common Stock Certificate
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 4.5
|
|
October 25, 2005
|
4.6
|
|
Warrant to purchase common stock of the Company issued to
Patriot Capital Funding, Inc.
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 4.6
|
|
October 5, 2005
|
4.7
|
|
Amended and Restated 11.50% Senior Secured Subordinated
Note, dated September 16, 2005, issued jointly by the
Company, Dover Massachusetts and Smith Brothers, Inc. to Patriot
Capital Funding, Inc.
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 4.7
|
|
October 5, 2005
|
4.8
|
|
Mezzanine Promissory Note
|
|
Form 8-K Current Report
|
|
December 14, 2007
|
4.9
|
|
Specimen Common Stock Purchase Warrant
|
|
Form 8-K Current Report
|
|
December 14, 2007
|
4.10
|
|
Registration Rights Agreement
|
|
Form 8-K Current Report
|
|
December 14, 2007
|
4.11
|
|
Amended and Restated Specimen Common Stock Purchase Warrant
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2009
|
|
November 13, 2009
|
5.1
|
|
Opinion of Bingham McCutchen LLP
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 5.1
|
|
November 17, 2005
|
5.2
|
|
Opinion of Preti Flaherty Beliveau Pachios & Haley LLP
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 5.2
|
|
November 16, 2005
|
10.1
|
|
1999 Stock Option Plan (the 1999 Plan)
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.1
|
|
August 26, 2005
|
10.2
|
|
Form of Stock Option Agreement under the 1999 Plan
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.2
|
|
August 26, 2005
|
10.3
|
|
2005 Equity Incentive Plan (the 2005 Plan)
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.3
|
|
October 25, 2005
|
10.4
|
|
Form of Stock Option Agreement under the 2005 Plan
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.4
|
|
October 25, 2005
|
10.5
|
|
Form of Restricted Stock Award Agreement under the 2005 Plan
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.5
|
|
October 25, 2005
|
10.6
|
|
Lease, dated as of May 29, 1997, by and between Dover
Massachusetts and CE Holman, LLP
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.6
|
|
August 26, 2005
|
10.7
|
|
Lease, dated as of October 12, 2001, by and between David
F. Post and Dover Massachusetts
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.7
|
|
August 26, 2005
|
10.8
|
|
Lease, dated as of March 1, 2003, by and between Smith
Brothers, Inc. and JDS Properties, LLC
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.8
|
|
August 26, 2005
|
10.9
|
|
Letter dated February 9, 2005 from the Company to JDS
Properties, LLC regarding lease extension
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.9
|
|
October 5, 2005
|
10.10
|
|
Lease, dated as of June 22, 2002, by and between Hockessin
Square, L.L.C. and Dover Massachusetts
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.9
|
|
August 26, 2005
|
10.11
|
|
Letter dated January 25, 2005 from the Company to Hockessin
Square, L.L.C. regarding lease extension
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.11
|
|
October 5, 2005
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
|
Number
|
|
Description
|
|
Form
|
|
Date
|
|
10.12
|
|
Lease, dated as of November 24, 2003, by and between North
Conway Holdings, Inc. and Dover Massachusetts
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.10
|
|
August 26, 2005
|
10.13
|
|
Stock Purchase Agreement, dated as of August 14, 1998, by
and among the Company, James F. Powers, David J. Powers and
Michele R. Powers
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.11
|
|
August 26, 2005
|
10.14
|
|
First Amendment to Stock Purchase Agreement, dated as of
August 14, 1998, by and among the Company, James F. Powers,
David J. Powers and Michele R. Powers
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.12
|
|
August 26, 2005
|
10.15
|
|
Amendment to Stock Purchase Agreement, dated as of
September 17, 1998, by and among the Company, James F.
Powers, David J. Powers and Michele R. Powers
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.13
|
|
August 26, 2005
|
10.16
|
|
Amended and Restated Loan Agreement, dated as of
December 11, 2003, by and between Dover Massachusetts and
Fleet National Bank
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.18
|
|
August 26, 2005
|
10.17
|
|
Amendment to Loan Agreement, dated as of December 11, 2003,
by and between Dover Massachusetts and Fleet National Bank
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.19
|
|
August 26, 2005
|
10.18
|
|
Amended and Restated Security Agreement, dated as of
December 11, 2003, by and between Dover Massachusetts and
Fleet National Bank
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.20
|
|
August 26, 2005
|
10.19
|
|
Amended and Restated Pledge Agreement, dated as of
December 11, 2003, by and between the Company and Fleet
National Bank
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.21
|
|
August 26, 2005
|
10.20
|
|
Shareholder Pledge Agreement, dated as of September 17,
1998, by and among Stephen L. Day, Jonathan A.R. Grylls, David
J. Powers, James F. Powers, Michele R. Powers and BankBoston,
N.A.
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.22
|
|
August 26, 2005
|
10.21
|
|
Amended and Restated Revolving Credit Note, dated as of
December 11, 2003, by Dover Massachusetts for the benefit
of Fleet National Bank
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.23
|
|
August 26, 2005
|
10.22
|
|
Letter agreement, dated as of September 16, 2005, by and
between Dover Massachusetts and Bank of America, N.A. (successor
by merger to Fleet National Bank)
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.22
|
|
October 5, 2005
|
10.23
|
|
Security Agreement, dated as of December 11, 2003, by and
between Smith Brothers, Inc. and Fleet National Bank
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.23
|
|
October 5, 2005
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
|
Number
|
|
Description
|
|
Form
|
|
Date
|
|
10.24
|
|
Guaranty, dated as of December 11, 2003, by Smith Brothers,
Inc. to Fleet National Bank
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.25
|
|
August 26, 2005
|
10.25
|
|
Redemption Agreement, dated as of August 25, 2005, by
and between the Company and Citizens Ventures, Inc.
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.25
|
|
October 5, 2005
|
10.26
|
|
Letter agreement, dated as of September 14, 2005, by and
between the Company and Citizens Ventures, Inc., amending that
certain Redemption Agreement, dated as of August 26,
2005, by and between the Company and Citizens Ventures,
Inc.
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.26
|
|
October 5, 2005
|
10.27
|
|
License Agreement, dated as of February 10, 2003, by and
between Weatherbeeta PTY LTD and the Company
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.28
|
|
August 26, 2005
|
10.28
|
|
Settlement Agreement, dated as of December 22, 2003, by and
between Libertyville Saddle Shop, Inc. and the Company
|
|
Registration Statement on Form S-1 (File No. 333-127888)
|
|
|
10.29
|
|
Employment Agreement, dated as of September 1, 2005, by and
between Stephen L. Day and the Company
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.30
|
|
August 26, 2005
|
10.30
|
|
Employment Agreement, dated as of September 1, 2005, by and
between Jonathan A.R. Grylls and the Company
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.31
|
|
August 26, 2005
|
10.31
|
|
Amended and Restated Subordination Agreement, dated as of
September 16, 2005, by and among Bank of America, N.A.
(successor by merger to Fleet National Bank), Patriot Capital
Funding, Inc. (successor in interest to Wilton Funding,
LLC) and Dover Massachusetts, acknowledged by the Company
and Smith Brothers, Inc.
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.31
|
|
October 5, 2005
|
10.32
|
|
Amended and Restated Senior Subordinated Note and Warrant
Purchase Agreement, dated as of September 16, 2005, by and
among the Company, Dover Massachusetts, Smith Brothers, Inc.,
Patriot Capital Funding, Inc. and the Purchasers referenced
therein
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.32
|
|
October 5, 2005
|
10.33
|
|
Amended and Restated Security Agreement, dated as of
September 16, 2005, by and among the Company, Dover
Massachusetts, Smith Brothers, Inc. and Patriot Capital Funding,
Inc.
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 10.33
|
|
October 5, 2005
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
|
Number
|
|
Description
|
|
Form
|
|
Date
|
|
10.34
|
|
Amendment No. 1 to the Employment Agreement dated as of
September 1, 2005 with Stephen L. Day
|
|
Annual Report on Form 10-K for the year ended December 31, 2005;
amends Exhibit 10.29
|
|
March 30, 2006
|
10.35
|
|
Amendment No. 1 to the Employment Agreement dated as of
September 1, 2005 with Jonathan A.R. Grylls
|
|
Annual Report on Form 10-K for the year ended December 31, 2005;
amends Exhibit 10.30
|
|
March 30, 2006
|
10.36
|
|
Second Amendment dated as of March 28, 2006 to Amended and
Restated Loan Agreement with Bank of America
|
|
Annual Report on Form 10-K for the year ended December 31, 2005;
amends Exhibit 10.18
|
|
March 30, 2006
|
10.37
|
|
Amendment No. 1 dated as of March 28, 2006 to Amended
and Restated Senior Subordinated Note and Warrant Purchase
Agreement with Patriot Capital Funding, Inc.
|
|
Annual Report on Form 10-K for the year ended December 31, 2005;
amends Exhibit 10.32
|
|
March 30, 2006
|
10.38
|
|
Agreement of Lease dated March 29, 2006 by and between the
Company and Sparks Lot Seven, LLC
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2006
|
|
May 15, 2006
|
10.39
|
|
Commercial Lease executed as of March 9, 2001 between
Marvid Crabyl, LLC and Dover Saddlery, Inc., as amended and
extended
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2006
|
|
August 14, 2006
|
10.40
|
|
Stock Purchase Agreement dated as of May 19, 2006 among
Dover Saddlery, Inc., Dover Saddlery Retain, Inc., Old Dominion
Enterprises, Inc. and Reynolds Young, as amended
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2006
|
|
August 14, 2006
|
10.41
|
|
Lease made as of June 2006 between Humphrey and Rodgers and
Dover Saddlery Retail, Inc.
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2006
|
|
August 14, 2006
|
10.42
|
|
Agreement of Lease for Shopping Center Space between Sequel
Investors Limited Partnership and Old Dominion Enterprises, Inc.
Dated as of May 20, 1997
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2006
|
|
August 14, 2006
|
10.43
|
|
LBs of Virginia Building Lease Agreement dated
November 1, 2000, as amended
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2006
|
|
August 14, 2006
|
10.44
|
|
Lease agreement made July 10, 2006 between Hopkins Roads
Associates and Dover Saddlery Retail, Inc.
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2006
|
|
August 14, 2006
|
10.45
|
|
Consent and Amendment No. 2, dated June 29, 2006, to
Amended and Restated Senior Subordinated Note and Warrant
Purchase Agreement with Patriot Capital Funding, Inc.
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2006; amends Exhibit 32
|
|
August 14, 2006
|
10.46
|
|
Waiver letter dated as of June 27, 2006 between Bank of
America, N.A. and Dover Saddlery, Inc.
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2006; pertains to Exhibit 10.16
|
|
August 14, 2006
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
|
Number
|
|
Description
|
|
Form
|
|
Date
|
|
10.47
|
|
First Amendment and Extension to Lease Agreement dated September
2006 between C.E. Holman Limited Partnership and Dover Saddlery,
Inc.
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2006; amends Exhibit 10.6
|
|
November 13, 2006
|
10.48
|
|
Third Amendment dated as of March 29, 2007 to Amended and
Restated Loan Agreement dated as of December 11, 2003, with
Bank of America
|
|
Annual Report on Form 10-K for the year ended December 31, 2006;
amends Exhibit 10.16
|
|
April 2, 2007
|
10.49
|
|
Waiver and Amendment No. 3 dated March 30, 2007 to the
Amended and Restated Senior Subordinated Note and Warrant
Purchase Agreement with Patriot Capital Funding, Inc.
|
|
Annual Report on Form 10-K for the year ended December 31, 2006;
amends Exhibit 32
|
|
April 2, 2007
|
10.50
|
|
Waiver by Bank of America dated May 14, 2007
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2007; pertains to Exhibit 10.16
|
|
May 15, 2007
|
10.51
|
|
Waiver and Consent by Patriot Capital Funding, Inc. dated
May 15, 2007
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2007; pertains to Exhibit 10.32
|
|
May 15, 2007
|
10.52
|
|
Waiver by Bank of America dated August 9, 2007
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2007; pertains to Exhibit 10.16
|
|
August 14, 2007
|
10.53
|
|
Waiver and Consent by Patriot Capital Funding, Inc. dated
August 10, 2007
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2007; pertains to Exhibit 10.32
|
|
August 14, 2007
|
10.54
|
|
Renewal of Lease for Shopping Center Space executed
August 3, 2007 between Sequel Investors Limited Partnership
and Old Dominion Enterprises, Inc.
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2007; amends and renews Exhibit 10.42.
|
|
August 14, 2007
|
10.55
|
|
Shopping Center Lease Agreement dated May 30, 2007 between
Pavillion North, Ltd., and Dover Saddlery Retail, Inc.
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2007
|
|
August 14, 2007
|
10.56
|
|
First Amendment dated June 25, 2007 to Shopping Center
Lease Agreement between Pavillion North, Ltd. and Dover Saddlery
Retail, Inc.
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2007; amends Exhibit 10.55
|
|
August 14, 2007
|
10.57(7)
|
|
Second Amendment and Extension of Lease Agreement dated
August 30, 2007 between C.E. Holman Limited Partnership,
and Dover Saddlery Retail, Inc.
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2007; amends Exhibit 10.6
|
|
November 13, 2007
|
10.58
|
|
Waiver and Amendment to Bank of America Loan Agreement dated
November 9, 2007
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2007; pertains to Exhibit 10.16
|
|
November 13, 2007
|
10.59
|
|
Loan and Security Agreement dated December 11, 2007 between
RBS Citizens Bank N.A and Dover Saddlery, Inc.
|
|
Companys Form 8-K Current Report, as Exhibit 10.59
|
|
December 14, 2007
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
|
Number
|
|
Description
|
|
Form
|
|
Date
|
|
10.60
|
|
Revolving Credit Note dated December 11, 2007 between RBS
Citizens Bank N.A. and Dover Saddlery, Inc.
|
|
Companys Form 8-K Current Report, as Exhibit 10.60
|
|
December 14, 2007
|
10.61
|
|
Intercreditor, Subordination and Standby Agreement dated
December 11, 2007 between RBS Citizens Bank N.A. and Dover
Saddlery, Inc.
|
|
Companys Form 8-K Current Report
|
|
December 14, 2007
|
10.62
|
|
Mezzanine Loan Agreement dated December 11, 2007 between
BCA Mezzanine Fund, L.P. and Dover Saddlery, Inc.
|
|
Companys Form 8-K Current Report, as Exhibit 10.62
|
|
December 14, 2007
|
10.63
|
|
Mezzanine Security Agreement dated December 11, 2007
between BCA Mezzanine Fund, L.P. and Dover Saddlery, Inc.
|
|
Companys Form 8-K Current Report
|
|
December 14, 2007
|
10.64
|
|
First Amendment to Mezzanine Loan Agreement with BCA Mezzanine
Fund dated March 27, 2009
|
|
Annual Report on Form 10-K for the year ended December 31, 2008;
Pertains to and amends Exhibit 10.62
|
|
March 31, 2009
|
10.65
|
|
First Amendment to Loan and Security Agreement with RBS Citizens
dated March 27, 2009
|
|
Annual Report on Form 10-K for the year ended December 31, 2008;
Pertains to and amends Exhibit 10.59
|
|
March 31, 2009
|
10.66
|
|
First Amendment to Revolving Credit Note with RBS Citizens dated
March 27, 2009
|
|
Annual Report on Form 10-K for the year ended December 31, 2008;
Pertains to and amends Exhibit 10.60
|
|
March 31, 2009
|
14.1
|
|
Code of Business Conduct and Ethics
|
|
Annual Report on Form 10-K for the year ended December 31, 2005;
amends and restates Code of Conduct and Ethics filed with
Registration Statement on Form S-1 (File No. 333-127888) filed
on October 5, 2005 as Exhibit 14.1
|
|
March 30, 2006
|
17.1
|
|
Director departure correspondence
|
|
Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2009
|
|
May 15, 2009
|
21.1
|
|
Subsidiaries of the Company
|
|
Annual Report on Form 10-K for the year ended December 31, 2005
|
|
March 30, 2006
|
23.1
|
|
Consent of Bingham McCutchen LLP (included in Exhibit 5.1)
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 5.1
|
|
November 17, 2005
|
23.2
|
|
Consent of Ernst & Young LLP
|
|
Annual Report on Form 10-K for the year ended December 31, 2008
|
|
March 31, 2009
|
23.3
|
|
Consent of Preti Flaherty Beliveau Pachios & Haley
PLLC (included in Exhibit 5.2)
|
|
Registration Statement on Form S-1 (File No. 333-127888)
|
|
November 16, 2005
|
23.4
|
|
Consent of Caturano and Company, P.C.
|
|
Annual Report on Form 10-K for the year ended December 31, 2008
|
|
March 31, 2009
|
*23.5
|
|
Consent of Caturano and Company, P.C.
|
|
Annual Report on Form 10-K for the year ended December 31, 2009
|
|
|
24.1
|
|
Power of Attorney
|
|
Registration Statement on Form S-1 (File No. 333-127888)
|
|
November 17, 2005
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
|
Number
|
|
Description
|
|
Form
|
|
Date
|
|
*31.1
|
|
Certification of Principal Executive Officer of Periodic Report
Pursuant to
Rule 13a-14(a)
or
Rule 15d-14(a)
|
|
|
|
|
*31.2
|
|
Certification of Principal Financial Officer of Periodic Report
Pursuant to
Rule 13a-14(a)
or
Rule 15d-14(a)
|
|
|
|
|
32.1
|
|
Certification by Chief Executive Officer and Chief Financial
Officer of Periodic Report Pursuant to 18 U.S.C.
Section 1350
|
|
|
|
|
99.1
|
|
Consent of William F. Meagher, Jr.
|
|
Registration Statement on Form S-1 (File No. 333-127888), as
Exhibit 99.1
|
|
October 5, 2005
|
|
|
|
*
|
|
Filed herewith
|
|
|
Furnished herewith.
|
|
|
Indicates a management contract or
compensatory plan or arrangement
|