##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Quarter Ended September 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 000-51624
 Dover Saddlery, Inc.
 (Exact name of registrant as specified in its charter)
 DELAWARE
    
    04-3438294(State of other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 525 Great Road, Littleton, MA 01460
(Address of principal executive offices)
 (978) 952-8062
(Registrants telephone number, including area code)
  þ o
  o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ  o þ




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##### 



DOVER SADDLERY, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2009
 PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial Statements (unaudited)Consolidated Balance Sheets  September 30, 2009 and December 31, 2008
    
    
    3Consolidated Statements of Operations  three and nine months ended September 30, 2009 and 2008
    
    
    4Consolidated Statements of Cash Flows  nine months ended September 30, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 4.
    
    Controls and Procedures
    
    
    19Item 4T.
    
    Controls and Procedures
    
    
    19PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    19Item 1A.
    
    Risk Factors
    
    
    19Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3.
    
    Defaults Upon Senior Securities
    
    
    21Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    21Item 5.
    
    Other Information
    
    
    21Item 6.
    
    Exhibits
    
    
    22SIGNATURES
    
    
    23EXHIBIT INDEX
    
    
    24EX-4.11 Amended and Restated Specimen Common Stock Purchase WarrantEX-31.1 Section 302 Certification of Chief Executive OfficerEX-31.2 Section 302 Certification of Chief Financial OfficerEX-32.1 Section 906 Certification of Chief Executive Officer and Chief Financial Officer
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 
 DOVER SADDLERY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
(unaudited)
 September 30,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    444
    
    
    $
    448Accounts receivable
    
    
    660
    
    
    
    833Inventory
    
    
    16,402
    
    
    
    17,330Prepaid catalog costs
    
    
    1,530
    
    
    
    1,673Prepaid expenses and other current assets
    
    
    1,355
    
    
    
    997Total current assets
    
    
    20,391
    
    
    
    21,281Net property and equipment
    
    
    3,404
    
    
    
    3,599Other assets:Deferred income taxes
    
    
    659
    
    
    
    583Intangibles and other assets, net
    
    
    943
    
    
    
    989Total other assets
    
    
    1,602
    
    
    
    1,572Total assets
    
    $
    25,397
    
    
    $
    26,452LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of capital lease obligation and outstanding checks
    
    $
    497
    
    
    $
    481Accounts payable
    
    
    2,043
    
    
    
    2,168Accrued expenses and other current liabilities
    
    
    3,389
    
    
    
    3,640Deferred income taxes
    
    
    276
    
    
    
    212Total current liabilities
    
    
    6,205
    
    
    
    6,501Long-term liabilities:Revolving line of credit
    
    
    7,300
    
    
    
    8,300Subordinated notes payable, net
    
    
    5,022
    
    
    
    4,906Capital lease obligation, net of current portion
    
    
    58
    
    
    
    125Total long-term liabilities
    
    
    12,380
    
    
    
    13,331Stockholders equity:Common Stock, par value $0.0001 per share; 15,000,000 shares
authorized; issued 5,187,038 as of September 30, 2009 and
December 31, 2008
    
    
    1
    
    
    
    1Additional paid in capital
    
    
    44,972
    
    
    
    44,801Treasury stock, 795,865 shares at cost
    
    
    (6,082
    )
    
    
    (6,082
    )Accumulated deficit
    
    
    (32,079
    )
    
    
    (32,100
    )Total stockholders equity
    
    
    6,812
    
    
    
    6,620Total liabilities and stockholders equity
    
    $
    25,397
    
    
    $
    26,452
  3




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##### Table of Contents



DOVER SADDLERY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues, net
    
    $
    18,545
    
    
    $
    19,022
    
    
    $
    54,056
    
    
    $
    56,617Cost of revenues
    
    
    11,744
    
    
    
    12,031
    
    
    
    34,507
    
    
    
    36,296Gross profit
    
    
    6,801
    
    
    
    6,991
    
    
    
    19,549
    
    
    
    20,321Selling, general and administrative expenses
    
    
    5,869
    
    
    
    6,326
    
    
    
    18,370
    
    
    
    19,196Income from operations
    
    
    932
    
    
    
    665
    
    
    
    1,179
    
    
    
    1,125Interest expense, financing and other related costs, net
    
    
    346
    
    
    
    317
    
    
    
    996
    
    
    
    966Other investment loss, net
    
    
    (20
    )
    
    
    (20
    )
    
    
    (1
    )
    
    
    (18
    )Income before income tax provision
    
    
    566
    
    
    
    328
    
    
    
    182
    
    
    
    141Provision for income taxes
    
    
    294
    
    
    
    154
    
    
    
    161
    
    
    
    76Net income
    
    $
    272
    
    
    $
    174
    
    
    $
    21
    
    
    $
    65Net income per shareBasic
    
    $
    0.05
    
    
    $
    0.03
    
    
    $
    0.00
    
    
    $
    0.01Diluted
    
    $
    0.05
    
    
    $
    0.03
    
    
    $
    0.00
    
    
    $
    0.01Number of shares used in per share calculationBasic
    
    
    5,187,000
    
    
    
    5,187,000
    
    
    
    5,187,000
    
    
    
    5,157,000Diluted
    
    
    5,247,000
    
    
    
    5,274,000
    
    
    
    5,233,000
    
    
    
    5,266,000
  4




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DOVER SADDLERY, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(In thousands)
(unaudited)
 Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008Operating activities:Net income
    
    $
    21
    
    
    $
    65Adjustments to reconcile net income to net cash provided by (used in) operating activitiesDepreciation and amortization
    
    
    585
    
    
    
    598Deferred income taxes
    
    
    (12
    )
    
    
    Loss from investment in affiliate, net
    
    
    1
    
    
    
    18Stock-based compensation
    
    
    135
    
    
    
    115Non-cash interest expense
    
    
    259
    
    
    
    194Changes in current assets and liabilities:Accounts receivable
    
    
    173
    
    
    
    463Inventory
    
    
    928
    
    
    
    (970
    )Prepaid catalog costs and other current assets
    
    
    (214
    )
    
    
    (831
    )Accounts payable
    
    
    (125
    )
    
    
    (5
    )Accrued expenses, other current liabilities and income taxes payable
    
    
    (250
    )
    
    
    (1,621
    )Net cash provided by (used in) operating activities
    
    
    1,501
    
    
    
    (1,974
    )Investing activities:Purchases of property and equipment
    
    
    (386
    )
    
    
    (887
    )Investment in affiliate
    
    
    
    
    
    
    (33
    )Change in other assets
    
    
    (27
    )
    
    
    (68
    )Net cash used in investing activities
    
    
    (413
    )
    
    
    (988
    )Financing activities:Borrowings under revolving line of credit, net
    
    
    (1,000
    )
    
    
    3,100Change in outstanding checks
    
    
    50
    
    
    
    31Payment of financing costs
    
    
    (40
    )
    
    
    Payments on capital leases
    
    
    (102
    )
    
    
    (110
    )Net cash (used in) provided by financing activities
    
    
    (1,092
    )
    
    
    3,021Net (decrease) increase in cash and cash equivalents
    
    
    (4
    )
    
    
    59Cash and cash equivalents at beginning of period
    
    
    448
    
    
    
    309Cash and cash equivalents at end of period
    
    $
    444
    
    
    $
    368Supplemental disclosure of cash flow informationCash paid during the period for:Interest
    
    $
    738
    
    
    $
    773Income taxes
    
    $
    353
    
    
    $
    1,136Supplemental disclosure of non-cash financing activitiesIssuance of common stock in connection with investment in affiliate
    
    $
    
    
    
    $
    380Equipment acquired under capital leases
    
    $
    
    
    
    $
    100
  5




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DOVER SADDLERY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 A. Nature of Business and Basis of Preparation
      Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues, net  direct
    
    $
    11,864
    
    
    $
    13,077
    
    
    $
    36,042
    
    
    $
    40,661Revenues, net  retail stores
    
    
    6,681
    
    
    
    5,945
    
    
    
    18,014
    
    
    
    15,956Revenues, net  total
    
    $
    18,545
    
    
    $
    19,022
    
    
    $
    54,056
    
    
    $
    56,617
   6




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B. Accounting for Stock-Based Compensation
    C. Inventory
  D. Advertising
  E. Comprehensive Income
  F. Net Income Per Share
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Basic weighted average common shares outstanding
    
    
    5,187
    
    
    
    5,187
    
    
    
    5,187
    
    
    
    5,157Add: Dilutive effect of assumed stock option and
warrant exercises less potential incremental shares
purchased under the treasury method
    
    
    60
    
    
    
    87
    
    
    
    46
    
    
    
    109Diluted weighted average common shares outstanding
    
    
    5,247
    
    
    
    5,274
    
    
    
    5,233
    
    
    
    5,266
  7




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G. Financing Agreements
 Revolving Credit Facility
     Senior Subordinated Notes Payable and Warrants
     8




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Cash and Cash Equivalents
  Financial Instruments
  H. Investment in Affiliate
     I. Income Taxes
   J. Related Party Transactions
  9




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K. Commitments and Contingencies
 Lease Commitments
  .
 Contingencies
   Recent Accounting Pronouncements
 Business Combinations
 10




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Consolidation  Noncontrolling Interests
 Derivatives and Hedging
  Intangible Assets
 Subsequent Events
 11




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Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
 This Quarterly Report on Form 10-Q , including the following discussion, contains
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995 that involve substantial risks and uncertainties. For this purpose, any statements contained
herein that are not statements of historical fact may be deemed to be forward-looking statements.
Without limiting the generality of the foregoing, the words projected, anticipated, planned,
expected, and similar expressions are intended to identify forward-looking statements. In
particular, statements regarding future financial targets or trends 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 or achievements discussed in or implied by the
forward-looking statements. Factors that could cause such a difference detailed in Item 1A. Risk
Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (fiscal
2008) and in our subsequent periodic reports on Form 10-Q . We disclaim any intent or obligation to
update any forward-looking statement.
 Overview
   Consolidated Performance and Trends
    12




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Single Reporting Segment
  Results of Operations
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Revenues, net
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    63.3
    
    
    
    63.2
    
    
    
    63.8
    
    
    
    64.1Gross profit
    
    
    36.7
    
    
    
    36.8
    
    
    
    36.2
    
    
    
    35.9Selling, general and administrative expenses
    
    
    31.6
    
    
    
    33.3
    
    
    
    34.0
    
    
    
    33.9Income from operations
    
    
    5.0
    
    
    
    3.5
    
    
    
    2.2
    
    
    
    2.0Interest expense, financing and other related costs, net
    
    
    1.9
    
    
    
    1.7
    
    
    
    1.8
    
    
    
    1.7Other investment loss, net
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Income before income tax provision
    
    
    3.1
    
    
    
    1.7
    
    
    
    0.3
    
    
    
    0.2Provision for income taxes
    
    
    1.6
    
    
    
    0.8
    
    
    
    0.3
    
    
    
    0.1Net income
    
    
    1.5
    
    
    
    0.9
    
    
    
    
    
    
    
    0.1
 
 (1)
    
    Certain of these amounts may not properly sum due to rounding  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues, net  direct
    
    $
    11,864
    
    
    $
    13,077
    
    
    $
    36,042
    
    
    $
    40,661Revenues, net  retail stores
    
    
    6,681
    
    
    
    5,945
    
    
    
    18,014
    
    
    
    15,956Revenues, net  total
    
    $
    18,545
    
    
    $
    19,022
    
    
    $
    54,056
    
    
    $
    56,617Other operating data:Number of retail stores (1)
    
    
    13
    
    
    
    11
    
    
    
    13
    
    
    
    11Capital expenditures
    
    
    105
    
    
    
    390
    
    
    
    386
    
    
    
    887Gross profit margin
    
    
    36.7
    %
    
    
    36.8
    %
    
    
    36.2
    %
    
    
    35.9
    %Adjusted EBITDA(2)
    
    
    1,159
    
    
    
    895
    
    
    
    1,899
    
    
    
    1,838Adjusted EBITDA margin(2)
    
    
    6.2
    %
    
    
    4.7
    %
    
    
    3.5
    %
    
    
    3.2
    %
 
 (1)
    
    Includes twelve Dover-branded stores and one Smith Brothers store; the September 30,
2009 store count includes the Alpharetta, GA Dover-branded store opened in Q4 2008, and the
North Kingstown, RI Dover-branded store opened in Q1 2009.(2)
    
    When we use the term Adjusted EBITDA, we are referring to net income minus interest
income and other income plus interest expense, income taxes, non-cash stock-based
compensation, non-cash goodwill impairment charge, depreciation,
amortization and other investment income, net. We present Adjusted EBITDA because we consider
it an important supplemental measure of our performance and believe it is frequently used by
securities analysts, investors and other interested parties in the evaluation of companies in
our industry. 13




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
    
    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 the Company might pay in the future in connection with potential acquisitions;
    
    Adjusted EBITDA does not reflect the interest expense or cash requirements necessary to
service interest or principal payments on our debt, or to pay related finance charges;
    
    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, additional stock options might be
granted in the future, which might have a future dilutive effect on earnings and EPS; and
    
    other companies in our industry may calculate Adjusted EBITDA differently than we do,
limiting its usefulness as a comparative measure.
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    272
    
    
    $
    174
    
    
    $
    21
    
    
    $
    65Depreciation
    
    
    181
    
    
    
    190
    
    
    
    580
    
    
    
    575Amortization of intangible assets
    
    
    2
    
    
    
    2
    
    
    
    5
    
    
    
    23Stock-based compensation
    
    
    44
    
    
    
    38
    
    
    
    135
    
    
    
    115Interest expense, financing and other related costs, net
    
    
    346
    
    
    
    317
    
    
    
    996
    
    
    
    966Other investment loss, net
    
    
    20
    
    
    
    20
    
    
    
    1
    
    
    
    18Provision for income taxes
    
    
    294
    
    
    
    154
    
    
    
    161
    
    
    
    76Adjusted EBITDA
    
    $
    1,159
    
    
    $
    895
    
    
    $
    1,899
    
    
    $
    1,838
 Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008
 Revenues
  14




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Gross Profit
  Selling, General and Administrative
  Interest Expense
  Income Tax Provision
  Net Income
  Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008
 Revenues
  Gross Profit
  15




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Selling, General and Administrative
  Interest Expense
  Income Tax Provision
  Net Income
  Seasonality and Quarterly Fluctuations
  Liquidity and Capital Resources
  16




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Operating Activities
  Investing Activities
  Financing Activities
  Revolving Credit Facility
  Senior Subordinated Notes Payable and Warrants
  17




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Working Capital and Capital Expenditure Needs
  Critical Accounting Policies and Estimates
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
   Foreign Currency Risk
  Interest Rate Sensitivity
  18




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Item 4. Controls and Procedures.
  
 Item 4T. Controls and Procedures.
    
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   
 Item 1A. Risk Factors.
  19




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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.
  A decline in discretionary consumer spending and related externalities could reduce our revenues.
  Material changes in cash flow, debt levels, and our financial results may adversely affect our
growth and credit facilities, require the immediate repayment of all our loans, and limit the
ability to open new stores.
  20




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
   21




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Item 6. Exhibits.
 Exhibit List
 Number
    
    Description*4.11
    
    Amended and Restated Specimen Common Stock Purchase Warrant*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
 
 *
    
    Filed herewith.
    
    Furnished herewith. 22




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##### Table of Contents



SIGNATURES
  DOVER SADDLERY, INC.Dated: November 13, 2009
    By:
    /s/   Michael W. BrunsMichael W. Bruns, Chief Financial Officer(Principal Financial Officer) 23




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EXHIBIT INDEX
 Number
    
    Description*4.11
    
    Amended and Restated Specimen Common Stock Purchase Warrant*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
 
 *
    
    Filed herewith.
    
    Furnished herewith. 24